MARKET CRASHES - LOOK BEYOND THE CURRENT PANIC SELLING
By Ruma Dubey
Whooah! The markets are crashing as though there is no floor. The most preferred clour today seems to be red – everything is painted in red. Right from Index, rupee, metals, oil; everything is painted in a rich shade of blood red. Even the moods are red. There is virtually a herd panic mentality; everybody wants to rush out at the same time.
As explained in the earlier Cover Feature, this is not the time to rush out but to rush in! What we are seeing today is a global reaction to China’s meltdown. Today, the Chinese markets closed 8.5% lower as fear is gathering momentum that China is could be much worse off economically than what it is letting the world believe. It’s like all that was pushed under the carpet, is now coming out the other end.
There are many who agree that this is a good time to buy quality stocks as they hit new lows. But many feel that the uncertainty is about when to get in. How do you know that the price at which you bought is rock bottom? You will never catch the lowest. But then a month ago you were willing to buy at much higher rates, right? And if you are buying as an investor, best to buy at every dip as then you get advantage of every lower price.
And buy you must in this market. Clouded by all these doomsayers, creating more panic, it has muted one’s ability to think through this dark patch and look ahead at the sun shine. There are quite a few facts which makes one believe that this too shall pass. Take a look at our take on why this is a good time to buy!
Indian story remains intact
Where is all that faith in Modi and his Govt gone? Yes, the past two Parliament sessions were a washout but surely one can decipher that we could see a change once Bihar elections get over? Maybe diplomatic talks will ensue and things will start moving. We have all the right policies in place and we just need to get the GST passed, bears will be chased out. Indian economy is more grounded and on safer soil; so no need to worry that we will fall through.
Rajan strong man to counteract rupee fall
The Indian Rupee v/s the US dollar, currently trading at Rs.66.48, lowest since Sept, 2013. But Reserve Bank of India Governor Raghuram Rajan, assured all when he said that he was ready to deploy foreign exchange reserves to curb volatility in the currency. And he said that India is better placed compared to other countries with low current account deficit, and fiscal deficit discipline, moderate inflation, low short term foreign currency liabilities, very sizeable base of forex reserves. What more assurance does one need?
China’s loss could be India’s gain
India’s dependence on China is not too much; in fact in the entire emerging markets, we will be the least affected directly. Metal sector could suffer the most but we could face indirectly due to other countries dependency on China, especially Europe. And when FIIs flee China, they will head to the next biggest economy in Asia, which is India. Even in comparison to other emerging markets, India comes forth smelling of roses.
US interest rate hike could be deferred
Mentally, we all are prepared for a US interest rate hike. Its been on the agenda right since the beginning of the year. And what, we are looking at 25 bps hike, at the most. This may not mean much fiscally but in terms of sentiments, it means that USA is turning around and it has its economy under control. But there is talk now that this could get deferred as the dollar v/s the other currencies is going from strength to strength and that is something which the US does not want now when it is trying to hike up its inflation. A rate cut at this juncture, would make the dollar stronger and that could push inflation farther away from its 2% target. Plus with all this global turmoil, US might prefer to wait and not go for it when it meets in September.
Commodity and crude oil prices fall further
Copper and aluminum prices dropped to fresh six-year lows, nickel prices tumbled to six-and-half year low. Brent and U.S. crude futures hit fresh 6-1/2-year lows on Monday to drop below the latest supports of $45 a barrel and $40 a barrel respectively. Gold is the only metal shining bright as the best hedge against risk - MCX gold futures are up 0.39 percent to 27,344 rupees per 10 grams. Falling prices are always good news – it might affect some adversely but majority of us would be beneficiaries.
India best placed, most stable in emerging markets
We live in a flat world today and we will pay the price for being globally integrated. But Indian economy is in revival stage, we have a stable Govt in place, we have the strength of the huge population which makes us the consumer-driven economy which China now wishes it had been instead of investment-driven, FDI is coming back to India.
Great buying opportunity
What differentiates this from the 2008 meltdown is that today though the BSE has crashed over 1000 points, not a single stock in the BSE Sensex group has hit a new 52-week low. This means that the fall in restricted mainly to the midcap and smallcap stocks. Especially high debt companies are being punished. Those which are falling are the ones which had gone up much beyond their valuations; so fret not. So go bottom fishing and pick up some gold nuggets at their lowest level.
Yes, things do not look good at the moment we should be prepared for more global tumult. But if you are a investor, be a bear chaser to bring back the bulls when the tide turns.