25.10.2008

• Mayhem on the stock markets across the globe
• It is not just the BSE Sensex and Nifty which have tanked. There is a secular bearish trend in all markets across the globe. Oil, gold, copper are falling on fears of a slowdown in global economy.
• Normally we see that people flocking to gold when stocks perform badly and vice-versa. But that is what is seen missing in this phase right now. The liquidity and market making capabilities of the yen carry trades are drying up because of the rise of the yen against the dollar to a 13 year high.
• It is situations like these that can rightly be classified as vicious cycles -- one news while feeding on others, feeds others and we end up with a vortex which sucks up everybody.
• Take a look at how cheap are respectable stocks available today. Instead of listing the bad performers, ET had to present a graph showing the number of falls range-wise.
• How much of our big business families worth now?
• Take a look at this graphic which shows the billions that our business families have lost in the current downturn.
  
• What should you do in such times?
• Depends on how gutsy or cautious minded and how deep pocketed you are. If you have deep pockets, this is the best time to make investments; even if your investments are faring poorly right now. Because the average cost of your investments will drastically come down and your portfolio will present an opportunity for you to exit or make a killing at the earliest signs of a bull rise.
• If you are not deep pocketed, but are not in dire need of money that you have invested; just grin and bear with it. Times will change -- in a year to year and a half period. Let no further falls in the market affect you. People in this category should not be singing "Singh is King" instead they should be singing "Cash is King".
• Look at what ET adivces:
• Put money in FDs before banks start cutting rates. Park some in savings accounts. It does not make sense to discontinue periodic investments in pension funds and SIPs. Gold and other precious metals may further fall, so wait before you buy. Don't sell shares in a panic. If you invest small amounts in stocks, don’t look at the scrip price for 2 years.
• Many of us might not have heard about vishi or kurie schemes. What are they?
• Vishis are community saving schemes popularly known as Kuries outside Gujarat. Small unregistered chit funds also go by this name.
• Did RBI's credit policy make a difference?
• To me it feels like the policy announcement lost its relevance in the mayhem. Perhaps many of us may feel so. But take a look at this ET editorial, which gives a more seasoned analysis on the policy announcement. I agree with it fully.
  
• You know why I like ET editorials? They give you such an excellent analysis of the macroeonomic situation which rarely comes from other sources. Perhaps it is their ETIG (ET Intelligence Group) which gives them tremendous number crunching strength.
  
• We have been closely watching the global economic scenario for the last couple of years. We have been following the scene right from the earliest signs of the appearance of the subprime crisis which led to the present situation. We suspected that it will have a negative impact on Indian markets. The IIP figures for August were seen as a blip, aberration or outright miscalculations. Take a look at this excerpt from today's editorial. It explains you how the sowdown is for real.
• Macroeconomic indicators such as index of industrial production (IIP) have long been suggesting a downward trend although advance corporate tax numbers mislead on the gravity of the situation. The IIP numbers for August 2008 (1.3% y-o-y) came as a shocker, leading to suggestions that data was faulty. But the 3.8% (y-o-y) decline in excise duty collected in September confirms that what was earlier seen to be a slowdown affecting the interest rate sensitive sectors such as realty and automobile and allied industries had begun to hurt others, including the consumer goods companies. If the global environment does not improve in the medium term, capital goods companies may see orders dry up. Faced with higher cost of funds and longer payback period, businesses are bound to revisit their expansion plans and even delay execution of projects that are in the pipeline. Clearly, investors should be prepared for the worst — single digit growth in corporate earnings.
• But all the same keep looking for signs of 'no-slowdown' like the rural demand. Demand in rural and semi-urban areas has managed to delink itself from the financial crisis. As a result, products that have a rural focus—like bottom-end twowheelers, entry-level cars and utility vehicles as well as lower-end gizmos—are all doing well.
• An explanation of how regulation can affect the cost of doing business
• By and large, regulators are a conservative lot and tend to favour caution over liberal growth. Thus, in India we have seen the facilitation by regulators of a high capital financial system while alternatives with lower capital requirements are either limited to government ownership, as in the case of the regional rural banks, or disallowed altogether in the insurance sector. The result is a financial system that is skewed towards the needs of the largely urban, organised economy while smaller and more informal enterprises do not enjoy the same access to the formal system. The net result is a far higher cost of doing business for small and informal enterprise than would occur in a more liberal regulatory regime.