Don't panic when others do

Dec 10, 2010

In this issue:
» Finally Finmin warns against volatility in FII flows
» Oil prices to ease after it touches US$ 100
» Inflation management goes for a toss with high commodity prices
» End of cheap capital for the global economy?
» ...and more!!

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The recent selloff in the stock markets has got many an investor panicking. They are getting rid of stocks as though the latter were plagued. Interestingly, the selling has been across the board. People are not just selling the bad stocks but also the good stocks. Reason: they are following the herd. They are scared just because others are scared. But is this approach right?

Investors who have been in the markets for a long term, view such selloffs as a big opportunity. The explanation for this is that a market selloff is an opportunity to buy shares of fundamentally sound companies at cheaper prices. It is common sense that buying low is always preferred. The world's best investors like Warren Buffett, John Templeton and Peter Lynch, have all advocated this principle. Buy when the markets are down and sell when they go up.

Again this does not mean that investors buy all stocks that fall in price. It is essential to be careful while selecting the stocks at all times especially during the crashes. Sound fundamentals, good management and cheap valuations is the combination that investors should concentrate on.

So next time people hit the panic button and the markets crash, don't panic but look at it as an opportunity to buy more of your favorite company.

Do you sell in market crashes or buy more? Share your views.

 Chart of the day
For most of us who are fed up with our current network operator, MNP (Mobile Number Portability) is the most awaited event in the New Year. It is something that will help us switch from the current operator to another operator and will help us retain our mobile number. However, it is interesting to note that when compared to our Asian neighbors, it would take the longest time in India to complete this process. Today's chart of the day shows the time taken to switch operators under MNP in different Asian countries. Time taken in India is the longest.

Data source: Regulators' websites in different countries

The volatile currency has given sleepless nights to exporters in India in recent months. For unlike their counterparts in China the fortunes of Indian exporters are not under the bliss of government protection. In fact concerns over incessant forex inflows were being voiced since the start of this fiscal itself. But then the Finance Minister continued to brush them aside on the pretext of a large current account deficit. However, it now seems that the Finance Minister has had a chance to review his opinion on risk of high FII invasion in stock markets. And we are not surprised that it is so. After all the risk of high FII invasion is more visible when the funds start withdrawing from the markets. All this while when the FII funds kept coming in they were conceived to be benign. Only when the tide is turning that the realization of risk has dawned upon our policy makers!

The turmoil in the euro zone has been quite a source of uncertainty for India. The other one is global commodity prices. This concern is making inflation management difficult for RBI. Inflation in India has eased a bit lately. However, the RBI Governor has cited the central bank's target as 5.5% by March 2011. The RBI has been trying to tame inflation. In November, it had raised the repo and the reverse repo rates by 0.25%. But the rise in global commodity prices has rendered the RBI's efforts futile. It must be noted that commodity prices are going up even when the state of the overall global economy is sluggish. However, it is comforting that despite all the turbulence, India's growth momentum hasn't ebbed.

Continuing with the discussion on spurt in commodity prices, of late even the trend in crude oil prices has been northbound. In this regard, the OPEC, which supplies about 40% of the world's oil, believes that oil prices will reach US$ 100 a barrel and then start easing. The current demand for oil is being driven by emerging nations notably India and China. When the global financial crisis intensified, the OPEC had gone in for a big cut in production. Especially since demand had waned. Consequently, oil prices had also melted. At present though, the OPEC seems to be comfortable with the overall situation. And would review its production plans only if there is something seriously wrong with fundamentals. In our view, the overall long term trend for oil seems on the way up what with demand expanding and supply failing to catch up. And with more and more oil fields witnessing declining output, supply side issues are not expected to go away anytime soon.

The world has shrunk. From 7 continents and 195 countries, the world has shrunk down to just three major circles of influence. These are the Euro Zone, America and the Emerging Economies. Now, the question is how the market dynamics are going to work between these very different nations.

In the emerging markets, economies are getting overheated with growth rates and inflation hitting new peaks. This has been fueled by cheap money creating asset bubbles and stock market booms. The Euro zone has been hit with problems left, right and center. While some countries have remained strong with prudent policies. Others have just taken a free ride all this while, and are capable of going bust anytime now. America is also confused and desperate. It has been trying to employ both fiscal and monetary policies to avoid a double-dip recession. Tax cuts and buying billions of dollars in bonds seem to be what the doctor ordered for Uncle Sam. So, where does this leave us? According to the Economist, over the next five years emerging economies are expected to contribute over 50% of global growth but only a 13% increase in net global public debt. Money will flow from the coffers of America and crisis hit Europe to India and other emerging nations. A more divided and skewed future global economy is in the offing.

Lord Keynes may believe that we are all dead in the long run. But perhaps the famous consulting firm McKinsey is not a believer of this school of thought. What else will explain its fascination of coming out with reports that look too far into the future. Its latest report has also toed the firm's traditional way of thinking. The report talks about how we have seen the back of a low interest rate regime. The Economic Times describes the report as saying how nominal and real interest rates that are currently at 30-year lows are likely to rise in coming years. Well, it seems not a lot of thought has gone into the report. What nominal and real interest rates are they talking about in a world where everything is being manipulated by the US central bank?

Thus, interest rates at least the nominal ones are likely to remain low as long as the US Fed wants them to be low. The report also points out how there is going to be a shortage of capital as countries like China and India embark on an investment boom. A boom not seen since the post war reconstruction of Europe and Japan. Well, no one in his right mind would tend to disagree that India and China would indeed need a lot of capital in the future. But to give a precise figure that global saving would decline by at least 1.8% of global GDP by 2030 is certainly not our idea of long term research. We would rather be approximately right than precisely wrong.

In the meanwhile, the Indian markets have continued the positive journey in the post noon session. At the time of writing, the BSE-Sensex was trading higher by about 142 points or up by 0.7%. Stocks from the healthcare and energy sectors were leading the pack of gainers, while those from the auto and IT spaces were amongst the main laggards. Other Asian markets ended the day on a weak note except for China which closed in the green. Indonesia and Japan were the biggest losers.

 Today's investing mantra
"The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell." - John Templeton

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26 Responses to "Don't panic when others do"


Dec 16, 2010

buy in panic


sujatha kumar

Dec 14, 2010

A prudent investor would buy when prices fall, but the question is, when has the market bottomed out? Are we buying at the best price or will it fall further. Moreover, one should have money in their hand for such situations and be prepared to wait patiently.


zaki mahmood khan

Dec 12, 2010

what i learnt 4m the market do'nt panic when the crash is calm give concentration to ur stock...but before this u have to sold out ur stock on the up level.
pick the stock in small small quantity.if goes down deeply invest more means double...then u will see the diff.........



Dec 11, 2010

I prefer buying 3 to 4 good stocks when market sheds points as per my stipulated budget and the price i wish.


Charanjit S nehranwala

Dec 11, 2010

Panic period is not fixed and predictable thus no purchase as there is no limit/prediction for down trend.


K Subhagan

Dec 11, 2010

While the shareprices are decreasing,the rumours are activating and the facts are dying,the actual buying seems a realty.But when the rumours are dying ,the price of good shares will sky rocketed.This is the theme of our share market.



Dec 11, 2010

This time I purchased SBI on every fall at Rs. 100/- difference. But so far I am still on minus side. May be being strong share I am still +ve on my decision. Now I am planning to acuire L&T at around 1900.



Dec 11, 2010

Yes,We wish to buy on dips,but the problem is we don't have money!
whatever we had has already been invested.
pray we had a perennial pocket.



Dec 11, 2010

Sound advice for sound minds! However, the opposite seems to be true, where herd mentality seems to be the order of the day.

Conversely, I truly wonder what would happen if everybody heeds Ajit's (rather Warren's) sound advice and acts on it in a similar fashion! There would be either all BUYERS or all SELLERS and we would end up in a similar HERD-LIKE situation.


JS Pandher

Dec 10, 2010

Buy more

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