Monday, January 21, 2008

Indian Stock Market : Week of Bulls and Bears

Indian Stock market has fallen sharply Monday and Tuesday too. Monday alone the Sensex Fell 1408 points to close at 16450, which resulted in the loss of 6,700 Billion Rupees of Investor wealth. This is the biggest ever loss through the Indian stock Market, and it is being continued Tuesday giving the second biggest fall in the History.

The question now is, are the days of growth over? This is a trillion dollar question.

The Indian Stock Market fall is in line with the Global Markets that has been falling for past few weeks. This is a clear indication that India is more prone to external factors than never before. Let is now see what might have caused the fall and what may be the way forward.

Before we move with those things, please read the disclosure of my blog.

Reasons for Fall and its future effect that can happen:
The major reason for fall is the US sub-prime crisis, which has resulted in the loss of billions of dollars for the US Banks. They have write-off more than 100 billion dollars in the last quarter. This has some direct effect and many indirect effects.
The direct effects are :
1. loss to the Banks
2. credit squeeze in the market due to less capital available with the banks
3. decrease in credit rating for the consumers whose loans are written-off
4. higher interest rate for consumer loans
5. low property prices due to less resale possibilities

These effects are very serious. I would say more serious than it is seen from the surface. The main reason being, it looks cumulative and iterative.
The result may be seen in weeks or months ahead and I see a very rough pitch for US economy to come out of this. The bad that can happen might be:
1. huge bankruptcy filing from the consumers due to low property prices and less credit availability.
2. bankruptcy filing from major banks due to losses spread to other portfolios like Credit Cards
3. less credit availability lessens the capability of companies to expand, thus decreasing employment
4. decrease in consumption of goods by the consumers thus causing deflation
5. a major US recession, and thus a global recession.

We have now discussed about what worst can happen. Now, lets see whether this is a possibility. I cant deny the occurance if governments do not take sufficient measures and the financial players support them. The effort may not be able to stop the loss but may slow down it. A decrease in interest rate cut by the US govt. has given some hope to the market, but I see loss a possibility in all cases.

Implication to India and Indians:
From the surface it looks very bad. I have lost around 50% of my portfolio value in last two days. But I see, there's no reason for investors of Indian companies to panic.
The major reasons I see for no panic are:
1. India has very strong domestic consumption (almost highest in Asia; US consumes 109% of their GDP; India at 55% and China 35%)
2. Indian companies are among the best performers globally.
3. India is young, above 60% of the population is below the dependent age. So that means huge workforce now and more in the years ahead.
4. Full functional democracy and moving towards liberal economy.
5. Investors have no alternative to invest than India.

Good news is, the stock market has bounced back in the last two days of this week. And Today (Friday) it has given the rise of 1100+ points giving it biggest intra-day jump in the history. Thanks to the global recovery.

But the bear is not over. US economic problems are still there. They are living in debt and their banks have crumbled. These worries may come all over again, hope not in the way that came this week.

But whatever it may be, India is set to grow. Asian Tigers grew in 70's to 90's, China 90's to present and India is set to follow same rule and grow in the days ahead. As everyone grows once and only once. All settles at a point and time before that point is critical. People at that growth phase grow more than economy and we are already seeing Indians growing.

Any body who is missing India now is missing his future. After all in the world today, Europe is history, America is present and Asia is Future. But not to forget, New and Integrated Europe is coming back once again and Americas defending. But Asia is fighting and winning lately, and so India.

Happy Growing With Big Indian Growth!! I am Bullish in Indian Story and in Sensex. Are you!!!

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