In the midst of the stock market turbulence, the government has sounded a word of caution to investors, with the pre-budget Economic Survey asking them to resist the 'herd mentality.'
"They would do well to resist from commonly observed 'herd mentality' and 'panic' in their buying and selling operations", said the Survey tabled in Parliament by Finance Minister P Chidambaram on Thursday.
The advice comes to investors in the middle of the Parliamentary Standing Committee on Finance looking into the developments in the market, particularly the January 22 debacle when the benchmark Sensex plummeted.
"Individual investors need to take informed decisions and remain cautious," it said, pointing out that Indian stocks as reflected in P/E multiples was the highest among the emerging market economies such as South Korea, Thailand, Malaysia and Taiwan.
It further emphasised that investor awareness is equally important from the market stability angle as "investment in equities could be based on incomplete analysis and guided by short-term speculative gains."
Pointing out that the importance of ensuring healthy and orderly conditions in the market has become more urgent, the Survey said the policy initiatives should "transmit right signals unambiguously, the regulators need to remain proactive and vigilant to obviate the occurrence of any irregularities in the conduct of business in the market."
It further said that insurance and pension funds would provide impetus and broaden the horizon of the government securities market.
The Survey said that continuation of initiatives aimed at policy reforms in the area of insurance and pension funds would provide the credibility to the government's efforts to carry forward the economic reforms and should also augur well for the capital markets.
In the backdrop of a vibrant capital market, it added that the corporates would have to step up their access to the primary market to raise resources both through equity and debt issues.
It further said that the government's efforts to streamline the regulatory framework would enhance activity in the primary capital market in terms of increase in the number of debt and equity issues as well as larger participation of investors, particularly retail investors.
Despite global slowdown, the survey said the strong fundamentals of the Indian economy in tandem with higher growth would help the nation in sustaining the interest of domestic and foreign investors in the Indian market.
Referring to the commodity exchanges, it said, "They are expected to perform well in the near to medium term."
In terms of transactions in the future markets, the Survey said besides gold and crude oil, other commodities, especially agriculture commodities, have gradually started gaining in importance and would help in "deepening the process of price discovery."