Depth of the Indian Markets

So as predicted in my previous article reality check did begin for the Indian market . It has somewhat recovered though and I expect further recovery. I am keenly watching the recovery. FII’s pulled out about INR 3500 Cr . once RBI raised interest rates .What is interesting is the total downfall tereafter.So if FII’s pull out less than a $ billion out of Indian markets , they fall by more than 10- 15% . This is bad performance as compared to other BRIC and developing markets .This certainly indicates one important factor which cannot be overlooked i.e. the depth of the Indian markets. Such a shallow depth will cause sharp ups and downs , some of which we have already seen.

Now how to deepen Indian market ?

This will eventually happen when lot of long term money flows in like life Insurance premium and Pensions money. This money typically stays in the market for good 15-20 years and provides stability to the market. Second is the participation by the Indian public in the market . In most developed countries investments in mutual funds roughly equal to bank deposits. In India we do have along way to go to achieve this although we are rapidly moving in that direction. Third and less significant is the participation by smaller but well informed investors. We either have traders type retail investors or a completely naïve kind .

I’m quite confident of long term prospects ( 5-10 years) of the Indian market.