After the second biggest fall which amounted to nearly a 1000 points, it has left me smacking my lips in anticipation. For the past four years, they were mere corrections, not dampeners. And the current swing has been best for the world.
The current crash worldwide is due to liquidity in certain markets like the US, Europe and most others, China is generally overvalued and most of the market stocks are hypothetical, not based on technicals. So even a slight rumor can manipulate its market. We felt the liquidity crunch more with the Reliance Power IPO. Noone wanted to hold it for long and everyone was looking for a profit.
Factors to watch out for -
Commodity prices are finally coming down. This means that most funds and managers now think it is time to rethink their investments away from these as they might fall or correct with a huge factor. Stay away from commodities and derivatives. This translates to high commodity prices only for select required items. Inflationary concerns remain in certain select products/items.
Gold, and Oil prices which reached all time highs are expected to be on the correction path. Oil(currently at 105) should be down and would probably stabilize at below 70$ levels in the long term. This ofcourse depends on how strong the dollar remains. If the dollar strengthens to 50 + rupees, that would be enough to stabilize the current economy. Oil prices might immediately see a huge correction to below 70 dollars even. Expect correction to last for another 6 months to 1 year before stabilizing. Also for the first time in the past 10 years, the dollar has gone below the 100 yen mark, which is a good sign. If it rallies consistently enough for the next few trading sessions, then that should be enough to pull the markets out.
What happened with Bear stearns is unfortunate. If the .75 basis cut had occured a week earlier, it would have been a lifesaver. The US Fed rates is at 2.25 currently.Stears invested when the markets were high and were forced to sell to pave off liquidity concerns. But it would have been a different matter if they had just stayed away from Asian markets when they were already at an alltime high. It would have eased their liquidity.
Contrary to what most people say, the US is what drives the world. The economy of the US alone equals to India, China, South East Asia, entire Europe, Russia, Australia, Japan, Brazil and all emerging nations. We do not want the US people to start saving. Not in the sense of holding their buys. All these countries together export more to the US and still, the US wants more! That's the power of the US economy. What we need to see in the US is more jobs, and as Bill Gates says, that can be created only if more H1B visas are available. It is exactly true that a person holding a job in the US indirectly employs around 5 emerging nations employees.
The US market should hold at the 12000 levels and improve its breadth. If it does, there would be great news worldwide. But if there is another Bear hiding with Lehman's then that would definitely depress the US markets!
If the growth of China slows down to even 8 to 8.5 percent, it would mean a huge job loss to the economy. Which indirectly pushes the cost of Chinese imports to India. What we should be looking for is importing more US goods to create the valuable jobs and at the same time provide it with the exports it is looking at.
At current levels, there are some choice picks, but not the right time to invest as even at the least levels, they would not appreciate much in the long term. So wait it out till April and then cherry pick depending on the sentiments.
That reminds me, the sentiment is one bad factor which affects the Indian market. Even when the US market corrected itself on news by Repulblican senator that the worst of the recession was over, the Indian market was down. This seems to indicate that most of the buying/selling was happening only by day traders. To enter the current markets, I would want it to appreciate a steady gain of atleast a 1000 points over a trading week.
Finally start investing after April 15th. No more bad news can only mean that the markets would be stable from here on. At this point, the financial year closes, a lot of the contracts expire and most companies account for expenses in the previous cycle.
One problem with the Indian media is that they are days behind from the US. There was a minor recovery while the newspapers showed negative news. Infact I even read an article about people investing in Gold. This is one which is headed for correction with the strengthening of the US dollar and I suggest stay away.
Suffice to say, I have an active interest in the stock market. Tip - If you are looking for a personal loan, head for the bank now, as this is the most likely time it would be approved.