US rating downgrade has resulted in panic among investors. Keeping this in mind, we have written an article advising investors about the course of action they should adopt in such choppy markets.

1. US Debt Crisis: Should it be a concern for Indian Investors?
Author: Dr. Renu Pothen, Research Manager, Fundsupermart.com India
This article was published in Moneycontrol.com on Tuesday, 16 August 2011
The year 2011 started on a good note for markets globally; however the trend could not be
sustained for long due to the recurring uncertainties that has enveloped the global
environment. The markets were subject to negative events around the world - firstly, the
natural disasters in Australia and Japan, political tensions in the Middle East, monetary
tightening measures undertaken by Central Banks in the emerging economies to tame inflation
and the worries over US recovery and Euro zone debt crisis. The final blow to these depressing
sentiments came in the form of downgrading of US long-term sovereign credit rating from AAA
to AA+ by Standard’s and Poor’s (S&P) ratings agency on 5 August 2011.This has led to an
adverse reaction among the market participants as all the major global indices ended in red on
8 August 2011, when the markets opened after the weekend. This bloodbath on the street
along with the correction that followed in the next couple of days, created a panic among retail
investors. Consequently, investors who joined the herd started selling their existing portfolios
without even giving a second thought to the benefits of staying invested for the long term. As
far as the view on the downgrade is concerned, we are of the opinion that this was done as the
rating agency believed that the measures taken by US to control its deficit was insufficient. We
continue to believe that the dollar will remain as the world’s reserve currency atleast in the
near term. Furthermore, this downgrade will not have any direct impact on the overall growth
trajectory and a default by the US government on its debt obligations is a not likely to happen.
How should investors play in volatile markets?
First of all, Indian investors should keep in mind that the Indian economy is basically dependent
on domestic consumption and is not export-led unlike other emerging economies. However this
does not make us completely decoupled from the rest of the world, but the impact of the
negative global events will definitely be much lesser on India as compared to other Asian
markets. As far as India’s macro environment goes, we believe that RBI’s continuous increase in
rates since March 2010 have definitely had an adverse impact on corporate profits and inturn
growth. However, since commodity prices are on a downward spiral, we are expecting
inflationary tendencies to cool down as a result of which RBI may put a stop to further hikes in
interest rates. The fact that India is currently undervalued along with the positive long-term
growth story makes a strong case for investing into equities for all those investors who are
ready to take little bit of short-term volatility. Hence, instead of selling investments which were

2. made with a view to achieve long-term goals, investors should continue to hold onto their
existing investments. In addition to this, investors should also start taking exposures in the
market either through the SIP route or lumpsum and in this way, take advantage of every dip
that the market provides.
The corrections happening in the global markets can also be used as an opportunity by Indian
investors to enter the same through the global funds launched by the mutual fund houses.
Global funds are those funds that invest directly into the equities of a group of countries/a
single country or into a parent fund which works on a particular theme like gold/agriculture,
real assets etc. Currently there are ~30 global funds in the market and offer documents for 16
more funds focusing on different themes and countries like Latin America, USA, Indonesia, etc
have been filed with SEBI.Although the sentiments on the global front continue to remain
negative yet we are of the view that the attractive valuations for most of these markets can be
used as an opportunity to enter the same. Indian investors are generally in favour of holding a
portfolio consisting only of domestic funds; however we believe that an exposure of 5%-10%
into global funds will help in geographical diversification along with minimizing concentration
risk. Investors when taking a call on these funds should keep in mind the taxation element (If
more than 65% of the allocation in the portfolio is towards international markets, then the
taxation mode will be similar to debt funds) and also the currency and geo-political risks that
goes along with these funds.
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mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from

3. time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an
offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should
be taken without first viewing a mutual fund's offer document/scheme additional information/scheme
information document. Any advice herein is made on a general basis and does not take into account the
specific investment objectives of the specific person or group of persons. Investors should seek for
professional investment, tax, and legal advice before making an investment or any other decision. Past
performance and any forecast is not necessarily indicative of the future or likely performance of the mutual
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