Thank you Dear Pranky for prompting me to share my thoughts.Both bulls and bears seem equally divided and their uncertainty proves that markets are the true barometer of the state of the economy.
In the long run,the markets are always right because they are self adjusting and as euphoric booms,and unwarranted steep downfalls get corrected over a period of time they gravitate towards their logical mean. However, invariably they overshoot both ways,thus providing the best moneymaking opportunities.
“BUY FROM THE PESSIMIST AND SELL TO THE OPTIMIST”
So simple,except there is good old "fear and greed" and even the best of the analysts succumb and fail to identify the real Top/Bottom. Selling early we loose the “cream”,while early buyers find bargains were expensive!
In Aug/Sep 07 Sensex had shot up from 14.5K to 16.5K. Bears were sure of sub 10K and many boarders sold out most of their portfolios. Dear Pranky initiated the best ever meaningful thread wherin a handful of “braveheart” boarders,including yours truly appeared optimistic.
I had argued that (a)strong growth numbers b)historically low inflation(c)RBI lowering interest rates and (d)huge FII inflows were fundamentally the 4 most important factors driving Stocks and therefore it was not the time to sell. Sensex went constantly up until January to 21K.
Growth and Growth Expectation was India’s USP. So,we remained the star amongst emerging markets for global investors. However,rising inflation forced RBI to sacrifice growth. PE multiples of our markets had to be reviewed and revised downwards as the value of “G” in “PEG” became suspect. FIIs turned net sellers much before the peak was reached.
Bubbles were clearly building up. Infrastructure, power and real estate were trading at crazy PE multiples. Finally markets were artificially sustained for a few days preceding the REL issue by mass hysteria of the disgusting POWER-ON saga.
There was a reversal of all the 4 prime reasons for our Bullish phase. Moreover, FM and SEBI forced PNote holders to liquidate positions and exit our markets, even as the liquidity was drying up globally on account of the sub prime mess. No wonder, after the entirely unsustainable euphoric period around the POWER-ON phase, the totally disappointed markets reacted voilently. Fortunately,the lows have not been tested thereafter.
It will take time for the markets to regain confidence and build up. Huge volatility is expected as every higher level will find many sellers.Most global economies will struggle with US recession and sub prime related issues. Commodity prices are soaring and the world is again at Food and Energy Crisis.
Fortunately Indian economy as well as corporate performance from most sectors remains intact. Valuations have become much more acceptable after the melt-down. Risk/reward ratio looks reasonable compared to other avenues of investments,even allowing for risks from coming elections and politicians. In the past also, most of our progress has come in spite of them!
Best regards,
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