Play safe, stay away from stocks
The world of equities seems to have opted for a bargain-basement sale. The BSE Sensex which scaled the dizzy heights of 21,000 points in January 2008 is today testing 10,000 and nobody is sure if the bottom has been found.
“Nowhere in the world are we close to a bottom. Put your money in a safe bank at 9 pct and forget about the stock market for the next two years,” Shankar Sharma, Joint Managing Director of First Global, told Reuters.
If that’s the case, one wonders if the response pattern will change to the Reuters Money question – Where do you see the Sensex by Diwali??
High-profile equities investor Rakesh Jhunjhunwala who had advised Indian investors to keep away from the stock markets as early as November 2007 declined comment on the current situation.
The Indian stock markets have been on a downward spiral for the past 8 months and more and bellwether stocks like Reliance Industries, ICICI, Infosys have taken a serious hammering at the bourses. Some equities analysts do see this as a good opportunity to buy and build a good portfolio for the future.
British economist John Maynard Keynes who said “in the long run, we’re all dead” be damned.
As my good friend and former NSE member PV Subramanyam says “these so called experts on TV are only looking at a teleprompter and not a crystal ball.”
Subbu’s advice: “Stay the course, there’s no point in cutting losses now and neither will you gain anything by panicking.”
Frankly, I’ve less time for those sharks who make their millions in the stock markets and lose a couple during a downturn than for the average retail investor who would’ve entered the market on a “tip” here and a “tip” there.
And, there’s a reason. A man who made and lost a million will most probably find ways to make more. But what about those ignorant investors who bought in a bull run because they wanted that extra money to meet a contingency. That hard-earned money is lost forever.
Although just 3-4 pct of the India’s one billion plus population invest in the stock market, the roller-coaster ride on board the Sensex Express is a story one cannot ignore. It’s still an significant indicator of where the real economy is headed.
There are those who say India, with its domestic demand and lesser dependancy on exports, will remain comparitively insulated from this mess. But this is a connected world, and India still needs foreign capital. If that dries up during a likely recession, India cannot come out unscathed.
Some experts say this is just the beginning. This downturn is going to hit the world (and it definitely includes India) in three waves – the credit market crunch, the trust deficit in the inter-bank money market and lastly a squeeze on corprate funding.
Equities analysts are likely to downgrade companies across sectors and regions as a tight funding environment can push up the cost of borrowing for companies thereby further squeezing their margins, which have already come under immense strain.
Things are not looking great at all and over the past few weeks I’ve seen friends and colleagues heaving a sigh of relief when markets remained closed on national holidays.
But the markets cannot be shut down despite the clear and present crisis and the India stock markets have their own circuit breakers which come into play to arrest free falls.
In such turbulent times, I’ll stick my neck out and request the average investor to stay away for at least a year.
But, I’m no expert and you might as well go by what an ex-Reuters colleague has posted as his Facebook update – a bull run is when fund managers sound like economists and a bear hug is when economists feel like prophets.
Maybe, he has a point. Your views?
– Madhu Soman is a Reuters journalist. The views and opinions expressed are the writer’s own and not those of Reuters. The article above is not intended to be a financial advisory. Readers must seek specific advice from experts before making investment decisions –