Diwali, the festival of lights, is here but do we see a pall of gloom with the BSE Sensex crashing more than 50 percent since January 2008?

Things have come to such a pass that some people have simply stopped looking at their portfolios. They think it’s too late now to cut losses.

“I have now lost faith in long-term investment, I wish I had booked profits in January when my portfolio had doubled,” says my friend Vikrant, who works for a leading business newspaper in New Delhi.

The tumble over the past 8-9 months had forced Vikrant to postpone plans to buy a new car, and when he finally bought one, he preferred a loan from his father rather than a bank loan at 14 per cent.

When I joined college, many had warned me to stay away from the stock market calling it a dangerous place, thanks to the scams by Harshad Mehta and Ketan Parekh.

I agreed then, although more out of respect, and I was more than willing to dump such talk along with my boring History textbooks.

But the events of 2008, with the credit contagion spreading to stock markets across the globe, have made me sit up and take notice.

January 2008 when the BSE Sensex scaled a peak of 21K seems a distant mirage. Just as the investors and the Indian media were eyeing 25,000 as the next target, the benchmark index has plunged to sub-9000 levels in less than 10 months (197 trading sessions to be precise) — something many of us never imagined. At least I didn’t.

“It is extremely risky to work in this sector now, the company is losing business everyday as investors are panicking,” said a sales specialist at a Delhi stock brokerage who did not want to be identified.

He is looking for a new job, this time in a different sector, after seeing the firm’s cost-cutting initiative render his colleague jobless.

But is the crash affecting life beyond the Sensex?

During the weekend, local shopping malls and markets which are usually chock-a-block with customers completing their Diwali shopping have seen less business as the urban Indian is spending less.

“The middle-class consumer is in a bad shape; nobody is in a festive mood to celebrate and buy gifts,” said Deepak Gupta, a gift shop owner in Delhi.

Gupta says he has lost around 60 percent of his Diwali business this year due to the market crash.

For his part, Gupta, has switched from costlier dry fruits to a comparatively cheaper option of a regular pack of sweets as gifts to friends.

The Bombay stock exchange opens for an hour every Diwali. Records show that the Sensex has slipped only once (2007) in the last three years during this special session.

Given the current negative sentiment in the markets, I wonder how our benchmark index will behave on Diwali.

With each passing day it’s getting tougher to guess the bottom, and for those who have heavily invested, the phrase ’stock market’ is no less than a nightmare.

But what we should do?

We always knew losses are a part of this game, and hence, we can only be patient and learn from our mistakes.

Remember, there is hardly anyone the market has spared, and maybe you can try to take a break from checking your portfolios during this festive season.

If you are invested or are currently buying in this market, this tip from investment guru Warren Buffet might come in handy — “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

I just hope things get better in the next five years. Actually, I can only hope. What about you?

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.

But, 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.

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 –

Joke 1
Joe Blogger had a cheque returned last week. They said it was due to “Insufficient Funds.” Now, Joe’s not sure if they meant his account or the bank’s?

Joke 2
There are two sides to a bank’s balance sheet - the left side and the right side. On the left side, there is nothing right, and on the right side, there is nothing left!

My cell phone has been bombarded with forwarded jokes like the ones above ever since the global financial crisis started. At least some people have their sense of humour intact despite the troubled times. Some might even thank God for such small mercies.

The BSE Sensex which has been hurtling down in a merciless downward spiral for the past 8 months has seen a Monday morning surge. The index is up more than 7 pct on assurances from finance minister P Chidambaram that the government was working on more measures to improve liquidity.

But will liquidity revive the markets and restore confidence?

For its part, India’s top private sector lender ICICI has unleashed an unprecedented information drive (on TV, by email and SMS) to assure depositors that all is well with the bank.

Over the past months, the world which went flat so that business could go where it’s done best might have actually shrunk. Pundits and punters talking about the Great Depression of the 1930s as if it was a Friday movie release that was not well-received.

Money which made the world go round seems to have suddenly done a vanishing act and we’re searching for answers.

The Reserve Bank of India’s (RBI) CRR cut is expected to infuse Rs 60,000 crores into the markets. This money can ease pressure on businesses which some newspapers reports said were forced to borrow from private lenders at 35-40 pct to sustain or complete existing projects, especially in the real estate sector.

Realty stocks like DLF which launched promoters like KP Singh into the global rich list have foundered badly.

But the contagion did not stop at just the real estate scrips. Bellwether IT firms like Infosys and TCS have been hammered along with banking stocks like ICICI which fell prey to a world-wide market aversion to the financial sector.

All this despite a general consensus among market analysts and economists that India remain comparatively insulated because of its strong fundamentals and less dependency on exports.

Monday’s rally has raised a number of questions, more so for the retail investor many of whom got singed badly.

Has the bottom been found finally?

Is this the right time to buy battered stocks and build your portfolio?

Can someone actually time this market?

We would love to get some answers. If you don’t have them, even jokes will do. I know it’s too late to laugh our way to the banks. But a smile can help, even in such days of despair.

Would someone please remind folks that it’s Friday and we all deserve a relaxing weekend? I for one will be doing my usual Saturday morning Yoga. But it’s nasty out there - the contagion has spread, and panic is now the correct adjective.

The overnight Dow crash hit Asia hard - the Sensex is down at least 9 percent and looks like it’s headed for a holiday south of 10,000, the rupee has hit an all time low and in Japan the Nikkei tumbled another 10 percent. Looks like that decision to let Lehman go bust set off the mother of all chain reactions…and Indian markets may be headed back to 2006 levels.

Here’s our resident technical analyst Phil Smith:

…As the chart shows the SENSEX has broken through some very strong and very important support points in the past couple of weeks. These are clearly showed on the chart with the support at 11,900 to 12,500 being broken effortlessly. The next major support levels for this market now stand at around 9,700 as marked and coincides with the old support levels reached back in 2006 when the market staged its dramatic correction then. Currently all the technical indicators are bearish as they have been since the middle of September

Once again, all eyes are on Washington, where on Saturday President Bush (remember him?) will meet finance ministers from the world’s wealthiest countries. The IMF will be there too with emergency funds available.

But is this the time for traditional remedies? A coordinated rate cut by central banks on Monday feels like ancient history. So what’s next? The U.S. government is talking about taking large stakes in banks to ensure liquidity (meaning free marketeer President Bush may preside over the largest nationalisation of banks in history!)

And that’s what it may take, because every other kind of faith seems to have been tossed aside - banks are simply refusing to lend. Here in India, Chidambaram is still calling for calm - insisting the fundamentals are strong.

But can you expect Indian investors to lie in Shavasan while the rest of the world takes billions out of the markets? Your views are welcome, and please, try to have a good weekend.