Play safe, stay away from stocks

October 16, 2008

mad.jpgThe 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?? rtr1vg9f_comp.jpg

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.

rtx7k5d_comp.jpgBut, there again, some of the “experts” were advising investors to buy at every level of the tumble – 18,000, 16,000, 14,000, 12,000 and now near 10,000.

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.

rtr20gg2_comp.jpgAnd, 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.

rtr1yycp_comp.jpgEquities 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.

rtr1w36j_comp.jpgBut, 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 –

 

17 comments

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I think the only sane advice in these insane times is not to lose heart and stay the course. It’s no use panicking and making wrong moves…maybe just hold on to what you have!

Posted by Real Times | Report as abusive

I would love to hear something contrary to popular perception……..

Posted by John | Report as abusive

With due respect to the author, the article tends to be pessimistic than cautious. In this times of 12% inflation, investing one’s total capital at 9% actually means realizing negative yields on your investment. On the other hand, these are not the best times for retail investors, who are usually not backed by analysis, to invest in stocks afresh. All the same, the markets may very well be bottoming out at another 5%. So, even as fresh investments are not advisable, neither is cashing out a good option. AS it is, most are sitting on heavy losses. Hence the advice to stay away from the markets ahould be restricted to fresh buying. For those already invested, isnt it best to stay invested and keep watch? In the process, one can bring down the % of total capital exposed to equities, for the next one year.

good stuff, and for what it’s worth, i’d say similar – steer clear for 6-12 months…just look at the last downturn cycles, and this one is potentially more damaging than tech bust

Posted by Lincoln Feast | Report as abusive

It is time to invest, but you need to be qualified. If you had resisted temptation and sat on a pile of money while everyone else was touting the value of stocks going up, up and away, you become qualified. Its the reward for that patience. Sure, you might want to ask, at whose expense. But then the golden rule of the market is what goes up must come done and if it goes up faster, comes down faster. The roller coaster, that is the stock market has gone up using up all the momentum and now hurtling down. Investing on beaten up stock is for the prudent, who did not enter the market on a hype.

Posted by Vinodh Ramasubramanian | Report as abusive

The message is load and clear – first create a portfolio of risk free investments that help you sustain a comfi life and then invest in stocks where the VaR does not hit you below the belt – and stock investment should be done on the basis of sound analysis of facts not the “analysts” who appear on TV and rattle of 10-15 figures in 2 minutes – they themselves don’t have a clue of what they are saying and they use figures to mask that.

Posted by Kaushik | Report as abusive

One cannot reckon even a tiny retail investor an ignoramus, (s)he too are driven by needs, perhaps greed to see the buck multiplying commensurate to steeply climbing graphs. Often amidst the climb one does not consider, everything is a cycle, and there would soon be an equally steeper down climb. I’m no economist, but rules of nature are evident all around us.

Everything happens in a cyclical motion, not trying to take onto a cosmic level. But its commonsense to avoid venturing to seas, when its rough. Having said that, every roaring tide, tumbling wave and mightily garish ocean waves would calm down..that again is a cycle.

No trumpets of prophecy, as peot crooned, but ‘O wind! if winter comes, can Spring be far behind?’

Posted by Hariprasad | Report as abusive

Thanks for un-biased and bird’s eye view to the current turmoil.

IMHO, if you are already invested and do not expect to be in need of cash for next 6-8 months then don’t panic and hold on to it. Don’t try to catch the falling knife, allow you money to recover itself.

Posted by AjayV | Report as abusive

An enlightening write up,which gives a perfect insight on the present stock market condition.Thanks for posting !

Posted by Vivek | Report as abusive

Derivatives, Credit Default Swaps, etc will put pressures on the financial recovery process. India cannot escape the global recession. Better be prepared for the worse. Markets are down (yes), a rally is expected, so use this rally to exit your positions, because it will be a suckers rally. We are in for a long bear haul (6 months is kidding). Banks haveto lend for economic activity to prosper, & I dont see that happening very soon. Wait till the real-estate prices start going down, which will create panic. Having said that, India China & Brazil are the ones to lead the recovery (whenever it happens)

Posted by Ashutosh Singh | Report as abusive

Well the Sensex has indeed has closed below 10K! Maybe the next target is 5K? No. I am not excited by this thought.

Sensex was around 5K levels during the 2004 Elections and we should not be surprised if we remain at the same levels during the 2009 elections! I just pray that all the investors have the strength to tide over this longish bear market!

It is greed which pushed sensex to 21000 and now fear is pushing it down to below 10000 . Only when sanity is restored in the investing community,we can expect sensex to return to a reasonable level .

Posted by D.Kannan | Report as abusive

I shed no tears…. and I wont say I saw this coming…. but this whole stupidity had to end!
I spent a lifetime preaching to friends that the stock market is nothing short of GAMBLING! – PURE AND SIMPLE! If you think all this is based on science, ask a gambler and he will throw a whole book of gambling science at you! Honestly, I think its time we bracketed these two ‘occupations’ (rather call them addictions) together and treat them the same way – send them all to a shrink!
Comeon give me a break – stop this nonsense about market SENTIMENTS driving the market!!! Ever heard of HERD mentality???, there is no intelligence higher than that ever applied in this whole farce!

Posted by Unni Krishnan | Report as abusive

excellent report sir. As far as investors are concerned they go by news papers/TV news/colleague but not with their own analysis. No body feels that there will be a bear phase next to bull phase. If any body feels that there will be a major life cycle to the Indian/World economy then he feels when to invest into the stock markets. I feel one has to study whether we are at the beginning of bull phase or not and start to invest. What will be the time period for the major economic life cycle? Is it eight years?? Please educate us on these lines.

Posted by balaji | Report as abusive

well how do you think institutions make money, with all the selling happening there must be some one buying, dont panic tech analysis is a must know in this market, when vix is near 70 option writers will get hansome returns, expect the market to form lower highs and lower lows, check the business of company and credentials, and invest and hedge with options, not investing can be one of the most fatel mistakes one can make, but pls remember no levrage

ashish

Posted by ashish | Report as abusive

Up and downs has been part of the equity market since last century when it all began in US. For an investor who had a long term ( 2-3 yrs) view of the market is still not a looser. He would have entered the market at 7- 8000 , he is still at a profit of 10-15 %. Equity market is like casinos of LasVegas. Once you become greedy you would loose. Thought of day -Invest in Systematic Investment Plans ( SIPs). It may help an investor during this bearish phase of the marekt.

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