- Wealth PMS (50L+)
What madness. Sensex closes around 8600, Nifty at 2550. We haven’t seen these levels for a long long time now, have we? We are now down 40% in a month. Anyone remember the Nifty close at last expiry (less than a month back)?
Absolute mayhem. This is a typical destructive bear market, but it’s not supposed to happen so fast, no?
A friend called me yesterday. He’s a real guru – the kind that speaks with actions, not words – and he said one thing that made it all come together. Every cycle today is shorter, he said. Information flow, and the ability to act on that information is so easy today that bull markets are compressed into a very small time period. So are bear markets. Who’d have thunk the Indian markets would be down over 60% since Jan 08, within 9 months? Yet, who’d have thunk the markets could go UP 35% in six months (July 07 to Jan 08)?
Shorter cycles means the person who survives is the guy who doesn’t get any of the news. One more thing my friend said was that people read a lot into history and translate times forget the shorter cycles. The 10 year bear market of the 70s may translate only to a 3 year bear cycle today. And stock markets may simply get more vibrant – ups and downs apart.
Less than 3% of Indian savings are in the stock markets. But a lot of our economy depends on stocks. You get retail chains who can raise funds from private investors saying they want to go public eventually. You get jobs because someone somewhere is a darling of the equity markets, and those funds need somewhere to go. You and I get a better life, an easier existence, relatively easy credit, multiple opportunities – all because the capital markets are vibrant.
If the markets need to continue to be attractive – and they are not, today – we need a solution that’s longer lasting. Full rupee convertibility (what better time to start!). Open bond and gilt markets (hello? why isn’t this there?). Listed debt and credit markets – yes, even I will want a piece of the supposedly distressed credit card or personal loan market. I have been hoping this happens, but it’s way too slow. Someone light a fire, please. Wait. Someone just did.
Finally, this is a time to be prepared. Economic recessions cause political catastrophes. And I would heartily recommend that you take your life, find out what’s the worst thing that can happen – loss of your job, your bank going bust, your housing loan being called back, etc. And figure out what you will do if this happens. Just a check list, so then if anything does not happen it is a bonus.
And what of the stock market? Markets are irrational (Someone please bring the random walk theory person here and beat him with hawaii chappals) and will forever remain so. Are they irrationally down? Or are these values that still make sense? The Nifty P/E is now around 11. That’s a historic low, but don’t let that confuse you…think about whether these companies will grow their EPS well going forward. Oh and by the way, current results are excellent. More funny-mentals. Trend of course, is down and going more down. The trend is your friend until it bends.