All markets are in strong bear grip, and every one is clear that the bull phase of 2003 to 2007 ended with indices giving away 65% of gains from all time peaks. All happened in much quicker time than every one expected, inlcuding me, though I predicted that 2008 is a tough year for equities and economies in January'08. US, UK and Japan are in clear recession as per the economic data revealed. The after shocks of financial crisis and credit crisis also is hitting indian economy and growth is slowing down here. The fall in commodity prices, weakenig of US dollar are offsetting the positive / negative effect mutually. No one thought Crude will trade below 60$ in the same year when it touched 148$ in 2008. Rupee moving from 39/$ to 50.50/$ has hurt FIIs badly this year. This is the problem with 'hot money'. it will evaporate in quick time.
Though crude came below 60$ Government of India is not considering the reduction in petroleum product prices, as they fear that demand shall inrease, putting strain on forex reserves as rupee is weak against US $. Oil marketing companies shall earn sizeable profits this year, and the burden on government to issue oil bonds or even pay interest is reduced which is good for balance sheet of GOI. Weakening of rupee is good news to Exporters to some extent, but there is no increase in profitability, as the finished product prices or billing rates in case of services are adjusted to the devaluation of currency. The major problem that industry and banking shall face will be meeting import obligations, with rupee not coming below 47/$. Certainly all the expansion programmes and import of Capital Goods etc., shall be deferred and put on hold as the project cost increased by 20% on the depreciation of rupee count itself.
Whether our markets have bottomed out? or when they will bottom out is the question looming in the minds of all investors, fund managers and analysts. The measures initiated by G-20 group and our own government, might arrest further fall below lows made during last month, Nifty(2252.75) & Sensex(7697.39) on 27-10-2008. For any reason if these levels are tested or breached, it will be good time to build longterm portfolio of blue chip stocks like, Reliance, Ongc, Infosys etc., Volatility has become part of life and markets which one has to live with for another 6 months atleast, until the stability of economies and recovery is visible. It will be traders with professional expertise who can make money now. Long term investors have to buy and hold for minimum 2 years for substantial returns.
Happy trading!
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