Tuesday, September 16, 2008

Simple Ideas: Prices fall in Bear Markets

Volatile conditions continued in world markets including India. The Nifty opened almost 130 points lower, then staged a decent rally to recover all its losses and close absolutely unchanged. As I write, the European markets are down almost three percent. In that respect, the Nifty is certainly outperforming the rest of the world. For how long ?

My Analysis
The Index has broken down from a trading range that lasted almost eight weeks. Such breakdowns / braeakouts have a lot of significance. The market is giving a message: After many weeks of confusion, one side has won the tug of war.
In this case it is the people who think that share prices continue to be high and will move lower. Like today, we will see many intra day rallies, but the net result will still be a market decline. At least that is what we should expect. The markets can always surprise us, by doing something different. That's fine.

The Million Rupee Question:
How should we trade this market ? This is a fair question. I hope to provide my answers over the next few days.

From www.expressindia.com:
ADB lowers India’s growth forecast to 7.4%
Prompted by ongoing global financial turmoil and weakened investment outlook, the Asian Development Bank on Tuesday lowered India’s economic growth forecast for the current financial year (2008-09) to 7.4 per cent from earlier projection of 8 per cent.

My Notes: This is not good news. The market may take its time digesting this piece of information. Now this is disturbing in many ways.

First, in the growth pie, the rich make the maximum claims. Whatever is left is given to the middle class and the poor. This is the trickle down theory, ably practiced for past few years. (give the rich, maybe something will trickle down to the others). Thus, a slow down in growth will affect the needy much more than it will affect the few hundred thousand rich in india.

Second, slowing of growth is likely to have an adverse affect on the stock market, sooner or later.


ART OF TRADE said...

Dear Sir,

Here is a good sms received :

At 21000,HDIL was @1500. Now DLF+HDIL+UNITECH+GODREJ+SOBHA+PARSWANATH+OMAXE+ANSALINFRA = 1500. A bumper festival!!!!!!

Shashank Jogi said...

Predicting the unpredictable (like GDP growth rates, asset prices, behaviour of societies, etc) is a mug's game. That however does not stop us from doing so, and often it leads to amusing conclusions.

Credit is like mother's milk to financial markets. What a credit crisis does is deny all assets with that 'milk'. It means stunted growth for such markets regardless of potential (read fundamentals).

The investment landscape for financial markets has changed and how! In light of lesser capital available investors must prepare themselves for lower PE multiples for stocks, lower investments, lower GDP growth and lower corporate earnings growth.

Foreign money is the primary driver of the Indian stock markets. A mere 12% outflow of all the money that came over the last 5 years made the markets tumble 33%. Without such money, big moves are unlikely.

We do not know where the bottom for the markets is, shall never know except in hindsight. All we can say is that we are in a bear market and in a bear market, prices go down. Bear markets end with revulsion towards stocks, not in denial, not in hope, not in optimism.

This blog is a excellent place to get different ideas and leads thereto. Readers may want to use it to think for themselves and arrive at their own conclusions. It may not be a good idea to abdicate your thinking to someone else, however reputed the source may be.

It is said that if you want advise about what to do in the markets, the best advise for you is to stay far away from the markets. There is no substitute for knowledge and ability.