FROM EXCESS TO SHORTAGE

What a U-turn market has taken in the last 3-4 weeks when we were talking about excess liquidity pushing the market to newer heights and India is slowly decoupling from the Global market and all. All it took was just a needle tip to poke the artificial bubble to loose all the stream.

No body raised their Eyebrows when market went up by 500 points a day, No regulator talked about the orderly conduct of the markets when stocks moved up 50% to 100% in a short period of time or an IPO listing at huge premium, No Big Operators(Individual or Institutional)
warned about excess valuation and an impeeding correction. But when the inevitable happened the media becomes sad, the investors become angry that the Regulator has not taken steps to arrest the crash and also blame the brokers for becoming strict with their margins and positions which they were allowing freely till last month. When you enjoy the fruits of global inflow of money you have to take the bitter pills also when that money exits quickly. Here are some situations for which the stock prices moved up rapidly till last month.

1. A Company gets an big order to execute a project spaning over 3 yrs.
2. A Company raises money from foreign market for its working capital or paying off another loan or for its expansion.
3. A Company takes overs or merely starts a discussion for a takeover of another company.
4. A Company decides to hive off one of its divisions - whether loss or profit making.

Even after knowing that the company will take 3 yrs to complete the project and realise its profits, the market or its manipulators discount that 3 yrs profit in the share price within a few days. Similarly when a Company sells its division or itself to another company both the seller and buyer companys' share prices goes up(it is supposed to be win-win situation for both, you know)

Now coming back to U.S market, instead of allowing it to correct on its own weight and remove the excesses from the system, the U.S.Fed indirectly supported the market by reducing the discount rate(Lending rate by Fed to Banks) by 1/2 a percent and urging them to take the money liberally. This liberal lending will 0nly help the system to support the losses for the time being. This has vastly increased the chances of Interest rate cut in U.S which will further put pressure on U.S.Dollars.

Now coming to Indian markets, We all know how the excesses of I.T, Communication & Entertainment(the famous or ill famous ICE sector shares) MELTED in 2000-2001.

We also know how much was talked about Sugar companies minting money in their Ethenol projects a year back and now most of them reporting losses and trading at 1 to 2 yr lows.

Now we are seeing the Automobile companies giving deep discounts to push sales and already the Biggest of them all - Maruti saying that it is difficult to maintain last years growth. And remember that automobile (commercial or passenger) sector slowdown is the first indication of a slowing economy as reduction in movement of goods and people leads to a chain of slowdowns in travel & tourism, lesser consumption of raw materials leading to lower production and so on and so forth.

To top it all, if U.S.Fed cuts its interest rate leading to a crash in the U.S Dollar,
Rupee will appreciate further resulting in margin contraction for our I.T companies and other exportors. With I.T(which contributes more than 50% to our economy) taking a hit, manufacturing sector slowing down and Agriculture contributing a mere 2% we are surely in for some tough times and the forecasts of 9% growth in GDP may soon be revised down to 7.50 to 7.80%

This revision in GDP growth target and slowdown in economy will make the market to correct further and I will not be surprised it SENSEX comes down to 12500-12800 range in the next 3 to 6 months.

SO HOLD BACK YOUR MONEY AND BE EXTREMELY CAREFUL OF YOUR INVESTMENTS AND HAVE A MINIMUM 2 YEAR TIME FRAME FOR ANY FRESH INVESTMENTS FROM HEREON. OF COURSE YOU ALSO HAVE THE OPTION OF MAKING MONEY IN A FALLING MARKET BY TAKING MY ADVICE AND PAY A PORTION OF THAT PROFIT TO ME GOOD LUCK