Cash not much in demand; no more parking space in equities, gold

We are in a peculiar situation where the benchmark market indices -NIFTY and Sensex have reached levels, perceived to be high while gold cannot be safe haven option for too long as the yellow metal has seen quite a run in the past eight months. Investment cannot go in the real estate and property markets which are in a state of a mess. So the cash would sit idle in banks, irrespective of higher or lower interest rates, the chamber document noted.

It said there is no investment appetite from the industry which is not even operating at full capacity. Whatever investment is coming in the industry is from the foreign direct investment or for bidding in obligatory natural resources like telecom spectrum.

 

Explaining the key point as to where too much liquidity is being generated from, in the absence of robust industrial growth or demand, barring a few sectors like automobile, the ASSOCHAM paper said India has been one of the main recipients of large cash being printed by central banks of the developed countries without any takers there, even at the sub-zero interest rates.

So, when we look at the elevated levels of valuations in the stock market, we should see with a muted sense of excitement because a large part of it is driven by a global liquidity and absorbing it has its own issues; though in the short term, the trend has helped bring stability in the foreign exchange value of rupee, said ASSOCHAM Secretary General Mr D S Rawat.

He said generally when too much money chases too few goods or assets, the prices of latter tend to increase; but not any more.

Equities had their run, so is the case with the gold. That leaves real estates. With several top notch builders in a messy situation of not being able to deliver the in-hand projects, there is a tremendous lack of confidence of investors or actual users in the property market. So, that leaves cash idle, the paper said.

It said thanks to improved prospects in agriculture following good spell of rains this Monsoon, India's rural demand coupled with the services sector would keep the rate of economic growth ticking at a decent pace. While the increased rural demand would give leg-up to certain industrial segments as well, it would not be to the extent of causing investment in fresh capacity.

Besides, the commodity cycle remains muted, though there are some pick up signs, though in a tentative manner. The export demand would too remain muted. Thus, the biggest trigger has to be demand for money for fresh investment, which is still far. On the other hand, the asset classes -equities, gold have reached saturation while real estate is in a nursing ward.

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