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“So far, it is a normal market correction”
We have been arguing that the market has been overvalued from late September-early October last year and one has to be highly careful about choosing the right stocks, said Debashis Basu, while addressing a seminar on “Markets in turmoil: What should you do?”
 
"Stay the course. This is not a time to panic. The conditions that create a major market crash are not evident at this point in time", said Debashis Basu, Trustee of Moneylife Foundation. He was addressing Moneylife Foundation members a session on 'Markets in Turmoil. What Should You Do Now' in Mumbai.
 
The markets have been struggling. Global factors along with poor earnings growth and high market valuation led to a steep fall in stocks prices leaving investors in a fix. Is it a good time to buy or should they exit now a cut their losses? 
 
Mr Basu, also Editor & Publisher of Moneylife, said, “Investors tend to forget that 15 to 20% correction in stock prices can happen at any time whether or not we are in a bull market. It does not necessarily presage a market crash that is part of a major bear market. In fact, over the past 20 years, there have been only two major bear markets - one in 2000-01 and another in 2008.”
 
Moneylife Foundation, with over 36,600 members is a leading NGO involved in imparting financial literacy and advocacy on behalf of financial consumers. This was the 253rd session organised by the Foundation, which is affiliated to Moneylife magazine and the website.
 
In just about six months, the Nifty declined over 1,400 points or 16% to 7,559 as on 7 September 2015 from its peak in March 2015. “Those who had invested in beginning 2014, will be looking at a significant decline in their portfolio value,” explained Mr Basu. 
 
He went on to describe which stocks and sectors did well in the pre-election period and recent crash. “Sectors which declined the most were the ones which rallied significantly, post the Modi-government came in to power, on expectations of reforms,” he said. Sadly, the Modi euphoria seems to have died out.
 
He pointed out that after Narendra's Modi became the Prime Minister in May 2014, the markets have been on a high. The Sensex shot up from over 22,000 in April-end to over 30,000 in March 2015. However, the market mood seems to have soured now. Major indices are now down 16% from their peak while many sectors such as realty, infrastructure, metals are down 30% or more in the past six months.
 
This has naturally given rise to anxiety among investors especially since the global markets are also in turmoil. The Chinese economy is expected to slow down significantly and the US markets have corrected sharply fearful of the interest rate increase by the Federal Reserve of the US.
 
However, this is not the first time there has been a huge sell-off in the market. There have been several instances in the past when the market declined significantly. Most of these occasions have been forgotten as the market rallied. Mr Basu brought these instances back to memory.
 
“Such severe bear markets have certain characteristics, such as, extremely high valuations, a flurry of fund raising activity, sharp increase in of little-known small stocks, new themes and overwhelming retail participation. These characteristics are missing in the current decline,” he added.
 
This does not mean, said Mr Basu, that one can buy stocks fearlessly and the market will be headed higher. "We have been arguing that the market has been overvalued from late September-early October and one has to be highly careful about choosing the right stocks." 
 
This is not so difficult, suggested Mr Basu, if one tunes out the noise and sticks simply to buying stocks that make high returns on capital.
 

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COMMENTS

Mohan Krishnan

1 year ago

May be it is too early to panic but the situation getting bad to worse. Even Fed (which presumably has best data in the World) Ms. Yellen has acknowledged that world growth is slowing and that markets are more interconnected than before. So if there is problem in China or US, India will definitely get affected.

Anyone who is ignoring these global cues will have serious problem with his portfolio.

My feeling is that one should (especially retirees) should lighten their Equity exposure to those level where they can sleep peacefully and tolerate downside which seems inevitable. Better to be safe than sorry.

Ms. Yellen has created a panic in the market saying Global growth is a problem. What more hints we require?

Muru R

1 year ago

Useful & informative Session.
Thank you for sharing your time &Experiences with us .

India's wholesale inflation falls further to -4.95%
Despite a steep rise in prices of pulses and onions, India's annual inflation rate based on wholesale prices continued in the negative territory in August, falling to (-)4.95 percent, official data showed on Monday.
 
The wholesale prices had decelerated by (-)4.05 percent in July. The steep decline in August was mainly led by lower fuel prices.
 
The annual rate of inflation, as per the official wholesale price index, stood at 3.85 percent in the corresponding month of the previous year, according to data released by the commerce and industry ministry.
 
During the month under review, some commodities of mass consumption continued to upset household budgets and notably among them was onion, whose prices were higher by as much as 65 percent over the like month of the previous year. Pulses were dearer by 36 percent.
 
Other protein-rich food items such as milk, eggs, meat and fish recorded modest price increases. On a year-on-year (YoY) basis milk was costly by 2.08 percent, while eggs, meat and fish prices rose by 3.30 percent.
 
At the same time potatoes and vegetables were cheaper respectively by 52 percent and 21 percent. Even the prices of cereals and rice dwindled. Cereals depreciated by 1.65 percent and rice cheapened by 3.48 percent. 
 
Overall, food articles' prices declined by 1.13 percent on a YoY basis.
 
Even under the manufactured products category, prices of commodities pertaining to food fell -- especially sugar that was lower by 19 percent year-on-year. 
 
Under fuels -- the index for which was down 16.5 percent -- petrol was cheaper by 13.26 percent and diesel by 24.54 percent. Cost of cooking gas receded by 5.32 percent. 
 
The WPI and consumer price index (CPI) which will be released later in the day, assumes significance as these are last significant pointers towards Reserve Bank of India's (RBI) rate decision.
 
The WPI and CPI indicators are also important, as they will give domestic guidance to the capital markets, just before the US Fed's Federal Open Market Committee (FOMC) meet on September 16-17.
 
The US Fed will decide during the FOMC meeting whether to raise interest rates.
 
India Inc. expects a better-than-expected WPI and CPI will drastically improve chances of a rate cut during RBI's monetary policy review slated for September 29.
 
Though welcoming the deceleration in inflation, India Inc cautioned against the deflationary trend and urged the apex bank for an immediate cut in key lending rates.
 
"Indian industry continues to be under the grip of deflation. Price pressures are at a record low," said Chandrajit Banerjee, director general with Confederation of Indian Industry (CII).
 
"The index has declined for the tenth consecutive month. Given that CPI inflation has also been declining, the RBI needs to reduce interest rates sharply to drive a recovery in demand."
 
Other major business body, the Federation of Indian Chambers of Commerce and Industry (Ficci) elaborated that though India remains a net importer of key commodities, the possibility of any immediate risk of importing inflation remains minimal. 
 
"Under the present circumstances, it would be most appropriate for the RBI to give weight to growth considerations and announce a deeper cut in the policy rate," said Jyotsna Suri, president of Ficci.
 
On The WPI, the Associated Chambers of Commerce and Industry of India (Assocham) said that emphasis should be laid on the supply-chain management of items like pulses, onions and others essential commodities as their prices have shot up during the month.
 
“Impact of poor monsoon might reflect in the food prices, besides uneven rainfall may hit crops and could pile pressure on food inflation in the future, as such the government needs to outline its preparedness and plan of action to deal with any contingency arising out of such an event,” Rana Kapoor, president of the Assocham.
 
The markets too welcomed the strong macro numbers, the barometer 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange, closed 246.49 points or 0.96 percent up on Monday.
 

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