This easy money is actually what is called quantitative easing, whereby you release a lot of money into the system by artificial liquidity. You do this when inflation is low and basically to push growth. This is what is happening in the US, Europe and Japan. But now, the Federal Reserve has decided to taper of its asset buying programme, if economic recovery in the US gathers steam. What this means that easy liquidity, which has been driving stock markets across the globe will not be easy to come by.
The Fed's announcement on Wednesday of a systematic withdrawal of stimulus sent global currencies into a tailspin with the Indian rupee sinking to a historic low of Rs 59.98 against the dollar. The Sensex followed the rupee in tumbling lower.Foreign funds sold massive amounts in the cash segments with Friday's net sales to the tune of Rs 1700 crores and Wednesday's almost Rs 2000 crores. Clearly, they are going to press sales as liquidity will now be a problem.
Along with liquidity, India's fundamentals have also taken a beating. The current account deficit is at record levels, economic growth rates are at a decade low and elections are around the corner. What at least the latter could mean is that no economic reforms are likely to take place.
It's clearly a tough time for the Indian economy and the political landscape. This week a host of blue chip stocks plunged to a 52-week low, as mayhem spread across the Indian stocks and currency markets.
Investing in stocks at even these levels could be a risky proposition, simply because you do not know where the bottom could be.