Saturday, September 27, 2008

Market fall continues: what to do?

The heavens are falling!! Heavens are falling!! Such a headlines will surely catch your attention, will it not?
Media TRP / clicks are a function of excitement in the market - not a bull run or a bear run.
Similarly brokers` revenues are a function of frenzied activity by the client. Not just a buy and hold theory.
First it was Lehman. Then Merrill was taken over by Bank of America. That will stretch its ratings - it has still not ingested the countrywide take over. Then it was AIG. Now there are rumors about Washington Mutual and Morgan Stanley. Then the bluest of them all Goldman Sachs. Will investment banking as a standalone activity die? I know not. Is it the end of the world? I think not. Are equity markets bleeding? Yes.
Equity markets need 2 things to do well. One they need fundamentals - good growth, decent management, good people, etc.
The other major ingredient is of course liquidity. When both of these are available in good supply, markets will thrive.
This is like a runner - he needs to keep on working on his fitness. He should eat right, exercise right, and have a good coach. This is a throughout the year effort. He cannot be lax, or feel ``bored`` doing it.
On the day he gets the motivation, his fit body is ready to take the opportunity, and win.
In the Indian market too, the fundamentals were good in 1999, 2000, 2001. However, it was in 2002 the cash flow (motivation) was provided and the inflows came in thick and fast - and provided momentum for the market to go from 3000 to 21000.
Now the fundamentals are in place. The motivation (cash flow) is missing. In fact it is negative. Nothing can be done to bring it back. The ``gora`` investor needs money back home. It is irrelevant that this is a small portion of his money. When Morgan Stanley, AIG, Merrill, Blackstone invested, we rejoiced. Now when they need to sell, and are therefore selling, we cannot mourn.
So, remember, the fundamentals are in place, the motivation is gone. Will it come back? Of course, the cash will come back. First in trickles, then in a flood.
However, the turmoil could take the index from 14000 to 9000 and then in 2013 to 30,000. Will this happen? I know not. Will it not happen? I know not.
But I know something. Just like the runner, you need to be there doing your bit every day. If you think you can get out at 13000 and come back at 9000 that may not be possible. Just continue doing your SIPs. Invest when the market is at 13000, at 12000 and at 11000. Because the market is capable of doing funny things - it might turn back from 9123 and you might be waiting for 9000. However, if you continue your SIPs you will be investing small amounts at all prices, and the index reaches 30000, you can feel happy and satisfied.
Just notes though, please do not hold me to any of these numbers!!

No comments: