I have read a couple of articles on the net one from Stephen Roach and other from Warren Buffet.
Both have hinted a very strong possibility of a US recession and the effects of it spreading to Asia. They are also hinting a bottom out of financial markets around the globe.
I just get a feeling that market are beginning to shake and we might see a strong downfall.
The US economy I guess is at a point of no return from recession, so we must get ready to save our money till we see that " Fortune Bottom " where we can get in.
I actually expect a recession to come in a phased manner.
What we may be witnessing is a gradual shift in economic activity from the western world to the Asian economies.
This is a result of globalization and it impacts may be spread over many many years.
Globalization will help in equitable distribution of wealth.
For an economy to prosper, it either has to produce goods that other economies buy or has to have a big enough local market to absorb all its produce.
What is happening now is that the western economies have become dependent on services and goods imported from the Asian countries.
As products and services are imported, their workers are losing jobs. At the same time they are not producing enough goods/services that Asian countries would buy to balance the trade.
As the workers lose jobs, the consumer markets of these economies will start to slow down.
As the economies slow down, investments will move out and go to places where better returns are expected.
As investments move out and asset prices fall, the currencies of these economies will start losing value.
This is going to be a long process. It will be more like a decay and not a bubble-burst.
That is more painful than a crash because it affects delivery based trade in short not good for people looking at better returns in a two-three year period. So what that means is that markets will lose some portion of retail investors.
The crude oil prices are shooting through the roof. Experts predicting that oil wont cross 98$ mark have been proved wrong in 3 months. As the winter sets in further, Oil prices may increase further, albeit temporarily.
The US's motive behind iraq war and the threatening of Iran may be the result of it trying to protect its long term strategic interests.
In such a scenario, the Left has proved to be a real big "Headless Chicken", as Mr Ronan Sen remarked. The nuclear deal would have definitely helped India.
In such a situation, do we expect a downsizing of Indices??
The crude oil prices are shooting through the roof. Experts predicting that oil wont cross 98$ mark have been proved wrong in 3 months. As the winter sets in further, Oil prices may increase further, albeit temporarily.
The US's motive behind iraq war and the threatening of Iran may be the result of it trying to protect its long term strategic interests.
In such a scenario, the Left has proved to be a real big "Headless Chicken", as Mr Ronan Sen remarked. The nuclear deal would have definitely helped India.
In such a situation, do we expect a downsizing of Indices??
I don't see much downside. My worst case guess is 16000 on the Sensex.
If US economy slows down, then money will flow out of the economy and it has to go somewhere. India is fast becoming the preferred investment destination for foreign money.
Also the rising crude prices are making the Arab countries richer. They have started investing in India too. Just yesterday there was a discussion about petrodollars being invested in India.
If western economies slow down or go into recession, then India will get affected. However, it is unlikely that the earnings growth for Indian companies will completely stop.
Making money in case of a slowed earnings growth will be little difficult than it is now, but will not be impossible.
I guess the happenings suggest that we may see more downsizing of the indices.
Currently the stocks are trading way above its value is wat I guess.
As you have given a detailed explanation on WIPRO.
I feel that market has risen to levels that one must see only in the future so I guess it has nowhere to go but down from here to a point where valuations are justified.
In case a "proper recession' sets in....then can we trust some infrastructure companies doing good.....
because funding of these infrastructure companies come from government (and not domestic consumption) and government has sufficient cash reserve to finance and not play default.....or will governmnet do subsidy stuff and keep valuations down.
just making a wild guess...me a new investor....and finding bank FDs more profitable than sensex stocks (just calculated PE vs. interest rates.....any PE above 12.5 is expensive against FD of 8%.....infaltion and taxes unaccounted)
If US recession was the prime reason for the crash, why has the US market just lost 1% in two days and we have lost 14%?
(US market was closed yesterday and is down 1% right now).
I dont know the exact answer to your question above but all I observed was US dint go to 20k levels as we did and both India and US were around 12k at same period of time when I remember people quoting that we overtook DOW...
I feel faster u go up, u fall more faster than that.
While the Indian GDP growth rate may be somewhat insulated from a US recession, the equity markets have a greater correlation with whats happening in the external world.
FIIs are owners of ~20-25% of the Indian stock market. If risk aversion in these entities grows, we will see days of great volatility ahead. Particularly so because the domestic retail investor is not sophisticated enough, and is a purely momentum player.
Lastly, most of the Indian companies' valuations are already taking into account the earnings of next 2-3-4 years. While this is OK in a bull market, its not OK in days of uncertainty. Many of the companies (DLF comes to mind) are dependent on raising capital from external sources for their operations. How successful they will be in this venture remains to be seen.
Last edited by sudeep.jain : 23rd January 2008 at 11:56 PM.
We will lose some growth, because of lower US demand for our products/services.
At the same time, we will benefit because of lower oil prices, lower commodity prices and opportunity to reduce interest rates.
Out GDP growth rate will slow down by 1%-2%, but that is it.
I Agree. Most of the US recession will have and is already having an effect on the IT and exports industry.
God knows what effect it will have on the jobs in IT sector (people like me will hope it to not have much impact)
apart from this, Indian growth story seems to be intact and as Alchemist has said time and again, with US recession, the money flowing out will have to go somewhere and India will welcome that with open arms.
Now with the leveraged part out of the market I guess that there won't be a big rise/fall i.e., after the dust settles.
But only time will tell when the dust will settle.
In that scenario the retail investors will be a bit safe as their investments will not go into big losses / gains. I guess that point is true.
Also how should a investor go trying to get in at 10k levels.
I guess investing in very very small amounts lets say 1/10 or 1/20 every month or quarter based on the events.
I would like to welcome views from all who have been investors or people who have seen this/similar scenario in the past as they will know exactly what to do.
Now that blood was seen lets try to bring out a investing strategy.
Stock Market Crash Due To A Recession?
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