These are the best of times. These are the worst of times.
The above famous quote from Shakespeare aptly sums up the state of the Indian Equity Market today.
Why are these the worst of times. Well I do not think anybody needs to be convinced about that.
These are the worst of times because ————————-
- The current generation the world over has not seen a financial crisis of this magnitude before
- The current financial crisis though emanated in US, has impacted the entire world
- Nobody knows for sure whether the bad news is over or there is still to come
- The current financial crisis had eaten up financial institutions like Lehman Brothers, Merrill Lynch, AIG etc. that used to be the epitome of the financial world at one point of time
- Millions of lay investors the world over have seen there portfolio turn red with no sight of recovery anytime soon
- Thousands have lost there homes, especially in US and thousands have lost there jobs
- Most importantly, all the security measures set by regulators the world over have failed miserably and that has shaken the confidence of the common man in the financial system
- Equity as a asset class has performed miserably this year and it would take months if not years for the common investor to turn to this mode of investment again
- The Indian stock market has fallen by more than 60% from its peak in a matter of a few months putting an end to a 4-5 yr long bull run
So is there a silver lining to this cloud?
What is good about the current crisis?
Well for one, its good that this crisis (International financial crisis) unfolded now. Because, the longer it had gone unnoticed, the more severe and deeper would have been the damage.
Two, hopefully and we can all pray for this, the Heads of Govts., the regulators, the people in-charge of financial institutions the world over (and that includes India) would LEARN A LESSON from the present crisis and devise simple to follow and easy to implement regulations that will stop the world from experiencing a similar crisis in future.
Specifically for India and especially the Indian equity markets, I believe this is an opportunity in disguise.
These are the best of times (for the Indian investor at least) because ————————
- A correction that was long overdue has finally taken place (although it is the severity of correction that has baffled even the best of experts)
- Shares of the bluest of blue chip Indian businesses are available at attractive valuations of 2-3 years back
- This is an opportune time for investors who had missed the bus , provided you are sitting on some cash now
- The Indian economy is one of the better economies in the world today and only big economy besides china that is expected to clock a 7%+ GDP growth rate
- Most Indian companies are sound and healthy and are expected to tide over the current crises relatively unscatched
- The Indian banking and financial system is quite robust (thanks to our regulators especially the RBI) and is facing a temporary contraction in growth not expected to last too long.
Yes, some bad apples are expected to surface in the months that follow. Especially those companies that had over leveraged themselves or mis-managed there cash position.
But is this not a blessing in disguise? It is in times like these that “Men get differentiated from the boys”.
So, hold your cash for some more time, let the fog get a bit clearer and than go out full throttle and bet on the Men out there. You are bound to get handsome returns in future.
(Mr. Nirav Panchmatia is a Financial Planner practicing under his firm “AUM Financial Advisors”. He is a Chartered Accountant (CA) & MBA Finance from Narsee Monjee, Mumbai and has worked for the past 8 years in leading financial institutions like Citigroup (Investment Banking), ICICI (SR. Manager – Subsidiary Business) & IRIS (Analyst) etc.