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The End Game Begins

As I speak, the DOW is 360 points down and crude is above $96. This is a mild reaction I suppose, and to be honest 2.6% is not much by Indian standards – but by US standards, it’s a huge panic situation.

Will this mean a US slowdown? In the near term (1-2 years) a US slowdown will result in more business for IT stocks, though dollar weakening is likely. Crude will come down in price if a recession strikes. Yet, other than financials, most US companies are reporting good and strong earnings, so I’m not sure there’s a cause for a panic or fear.

What does it mean for India? Honestly, very little. India only supplies low cost goods to the US and if the RBI is able to keep the dollar-rupee equation sort of steady, exporters won’t perish. Secondly, flow of capital will increase into India but only after three months or so. India has problems of its own – high interest rates, upcoming elections, oil price insanities, regulatory hurdles and controlling inflation. These are significant for us, probably much more than a US recession.

Today’s been a down day – a 100 points on the Nifty futures – but I think it’s a sign of the days to come. The rallies will be sharp, and the falls will be dramatic. And one day there will be a big brutal fall because of some pinpointed reason like elections, or someone died, or someone thought someone died or someone thought someone broke a toenail. It can be flimsy or it can be big; the actual reason does not matter – the problem is: we’re standing on a very shaky floor. We’re looking for a reason, any reason, to fall.

Volatility is horrendously bad for a regular trader, so I’m going to cut some of my trading – in fact I might take a call only in the last 1/2 hour of trade. I’ve already cut down some positions – L&T, Reliance Capital and some Sintex – and I will likely cut more if my stocks don’t like me.

What’s important now is to not panic and to expect the fall on a regular basis. Everyone thinks this market will bounce back to Nifty 6200 or more – and yes, it may. I think a move like that will be extremely short lived. I’ll lose my first 10% – I have no problem with that – but I will try and cover any further falls.

Am I predicting the beginning of a bear market? I don’t know, can’t predict that much. But it’s the beginning of the end-game, and like in bridge, this is where most of the strategy lies. Don’t panic, think hard, and keep a very cool head. Remember, you only need to ensure you can live to make your profits back. No over leveraging. No instant booking of losses – wait a while, even if the stop loss is breached. And buy where you see value; this is the time value is important. Value is not “this stock was 300 Rs and now only 50!” – that’s a stupid argument. Value is a stock you don’t mind holding for two years or more, even if in those two years the stock market drops 40%.

As usual, I’m happy to be proved wrong. I just don’t like the signs right now, and I wanted to say so.

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