India or Euro Zone that's under more Trouble?

World markets have hit their 3-4 month lows on fear of impending Greece default/ Greece moving away from EURO. The result has been Currencies weakening against USD & JPY. Dollar Index at almost yearly highs.

We (India) are no different the Index has correctly around 14% from the year to date high. The reasons are varied in nature. 

Policy Paralysis, High Inflation, Low Growth, Current Account Deficit, Currency Weakening. 

Lets for a while shift focus to the Currencies. Although its not appropriate to compare USDINR to EURUSD (As the former is not a free-float currency). 

USDINR & USDEUR - 1 Year Charts

Assuming that all the problem is just with the Euro Zone & India is free from any problem of our own would be living in denial. Currency is the Indicator of Good Health of the Economy. The chart tells us that EUR has weakened 10.81% against the USD in the past 1 year however our Rupee is down 19.91% against the Greenback in the same period.

This clearly shows the flight for safety by investors (FII's pulling out money & don't seem to be interested to come back until the Policy actions are taken & key bills are passed in the Parliament. The recent Tax fiasco to tax any M&A that has an Indian asset involved has not gone well with the FIIs too. 

Dollar Index: If you want to know what is a Dollar Index. Please read it here.

Dollar Index is nearing its December Highs of 81.51 & a breach of it can strengthen it further & taken it to 84 levels & subsequently to 87. Chart clearly indicating that money is moving towards Greenback even the precious metals are being dumped for the Greenback!

Bottom Line: The government has been disappointing in passing any key reforms that would accelerate the growth. Even the Crude crashing has not helped us to reduce the deregulated Petrol Prices (Because the reduction in Crude price is offset by Rupee depreciating against the dollar). So still we end up paying the same amount for our imports even though crude has corrected.

It's an excellent time to pocket in ETF's of NIFTY & BANKNIFTY slowly in a SIP way for long term. Of course the trade on the long side does give good Risk to Reward Ratio at around 4840-4880 levels as lot of Index stocks are nearing crucial support area.  But as some genius has said Sell May & Go Away  - Its better to wait out May & Enter in June as you never know the news that may come out in May :-).