This is not a good time to invest in Mutual Funds

Dont even think of making new investment decisions at this point of time in mutual funds. Why?

1) Inflation is over 12% and climbing. There are talks of inflation coming under control in a couple fo quarters and it may certainly get easier if crude oil falls below $100 . But with reports about possibilities hurricane Gustav becoming a level 5 storm and hitting oil companies in mexico, this may not happen in the next couple of months. So we may be a little off about estimates about getting inflation under control.

2) Interest rates have increased, GDP has fallen and one may think this would be an ideal time to invest. But alas, interest rates will increase once again in October in all probability, growth will be hit once again. And the stock markets are going to fall further.

3) Currently the Nifty EPS is about 18.4 and Nifty growth is hardly 10%. In fact the growth in Q2 is going to be even worse than the growth in Q1.

4) The Global economic condition is worsening. Originally it was fear about US recession now Japan and UK, in fact a major portion of Europe is on the brink of recession. It is not at all clear how long and how deep is the current crisis is going to be.

So what is a good time to invest in mutual funds ?

1) Inflation under control.
2) GDP growth on target.
3) No major world economies, especially those directly affecting Indian markets facing recession fears.
4) Watch for IIP (Index of Industrial Production) data which is released every month. A consistent increase in IIP data would be a good indication of a healthy economy. Note however IIP must be compared with the same month last year rather than the previous month.

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Aug 31, 2008

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