Has the market bottomed out? , Is this the right time to buy? , How much more downside?, Should I invest now or wait?
So many questions , Well and there doesn’t seem to be any answer for it. When things turn bitter it takes every good out of it.
Let me ease you out and help you to go in some direction which I think could be the best option.
Well if you take the above questions into consideration the only thing I can say is that look it as an opportunity and you will win.
Look @ the risk reward ratio. Imagine downside to upside and rethink.
Can market go to 6000? Or there are better chances for it to go to 12,000?
If we see the current levels of 8000 on sensex and assume the levels. Just imagine that you have a max loss of 25% but a profit of 50% and things around 50% is more viable. But what makes me feel so…
Well there are many reasons for it
1) Why a country like India should fall as much as US? Do we deserve to go down the same way as other countries I would say probably not and the reason is simple. In spite being affected due to the recession in world I think that we can withstand the pain in a much better way.
2) Earnings downgrade?
Some times I feel like laughing on such things. Why? Because just few months back when we were at 22,000 no one was even talking about it and now at 8000 people are showing concerns on earnings.
Average growth of companies had been good in range of 40-50% (Avg) for the last 5 years but that doesn’t mean that we should continue to do the same and we will not because we are some where affected by the global slow down and it should reflect on earnings. But even if you take that into consideration still companies in india are growing at an average rate of 30% which is not bad at all. Just see how much stocks have fallen but in that comparison do they deserve to be battered so hard? Is the slow down in earnings so severe? Does this mean that 30% growth is here to stay? Again so many things . now let me put the worst case scenario. Earning could slow down to 20-25% from 40-50% that’s for short term I mean 2-3 quarters. Currently we are in the range or 30-32% but if things gets worse it will come in the range of 25%.
Even if we grow at 25% I don’t think that there is any other country in the world where companies are showing 25% growth. So the positive thing is that we have fallen in line with the global markets but we do not deserve to fall that much.
Now going forward when things stabilize people will again start putting money into the markets. And India would be the best place where people will find it safe to invest money in. The reason Is we have a steady growth.
People talk about GDP growth coming down from 9% to 5-6% now most of the FII expect growth to be in the range of 5-6% but personally I feel that we are going to exceed expectations. It will be more than what FII expect which would be a trigger for our markets to go up.
By the time the numbers come out our markets might already be trading up 30% from the current levels. So 20% more will make it 50% up from the current levels of 8000.
Few other reasons to be bullish about this market
1) Interest rates have peaked out
2) Crude has fallen to $60
3) Inflation is coming under control
4) Dollar appreciation will be under control going forward
So the concerns that seemed to be there few months back are going to be solved in next few months.
This is not the end of the world. Its not that people will keep that money into banks because they don’t even trust banks – looking at what has happened to US banks. (It doesn’t mean that in india the banking system is not good – infact it’s the best amongst all, ofcourse there are few exceptions) but people want more returns so they are going to put money into stock markets.
Now comes other source of high returns or other sources of investments. Lets take real estate into consideration. Almost everyone feels that property rates have peaked out and soon they will see real estate price falling around 30%.
So people are selling of their properties and investing 50% in stock markets and 50% in banks FD.
Now going forward things will stabilize in stock markets as well as real estate market. Lets assume that real estate price have fallen 30%
Take an example of a house which cost me 10 lakhs few months back is now available for 7 lakhs. I en cashed money @ 10 lakhs and kept 50% in FD and 50% in stock markets. i.e 5 lakhs in bank and 5 lakhs in stock markets.
Taking a period of 1 year into consideration. Lets assume that stock market are at 12,000 levels ( and there is no reason y it should not be at those level) your investments made @ 8k sensex for 5 lakhs would be of atleast 6.5 to 7 lakhs and your 10% interest on 5lakhs FD would amount to 50000 Rs. So total amount comes to 6.5 lakhs + 5.5 lakhs = 12 lakhs 20% net profit and the cost of the house you sold would be 7lakhs or less.
Now the choice is depending on market conditions you can keep the 5lakhs FD as it is @ 10% and invest back 7 lakhs in the same house you sold for 10 lakhs few months back.
Or invest 2lakhs of the money that you earned by doing all these transactions in stock markets (tension free as its not your capital)
5 lakhs in FD and buy a smaller house for the 5lakhs that you have. In this way your investments will be diversified and the risk might come down.
So think I just gave you a ray of hope and the things that I feel.
I may not be correct in what I said. But I am just talking something that’s logical in my way.
Hope you enjoyed reading this. And hope that this has helped you to get some direction if you are stuck.