What should investors do in times of panic and crisis? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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What should investors do in times of panic and crisis? 

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In this issue:
» Realty sector biggest loser in last one year
» Chinese banks offer cheap loans to Indian power companies
» Investors queue up to grab a pie of the Bihar growth story
» One million bank employees go on strike today
» ...and more!

----------------------------------- Free 10 Minute Video -----------------------------------

The US debt crisis may have been averted... but the chance that there could be a global crisis in the months and years to come cannot be ruled out.

In fact, the crisis could be bigger than anticipated.

Given this possibility, how should you plan your portfolio? Where can you find investment opportunities that could benefit from this scenario?

To get answers to these questions and more, we spoke to Asad Dossani, author of The Lucrative Derivative Report.

Asad's views on the crisis, and the opportunities it presents, are available in a 10 Minute video, which you can view right now! For Free! Just click here...

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00:00
 
The heavy sell-off in the US stock markets triggered by the looming double dip recession and the debt crisis in the US sent the world markets panicking. The tremors of this panic wave have hit the Indian shores as well. The benchmark Indian indices bled heavily and witnessed their 13-month lows. As reported by a leading daily, nearly one out of every five stocks in the BSE 500 index is close to its 1 year low.

It goes without saying that many of you must be witnessing significant losses on your portfolio. The very obvious question at this moment is what to do next. Is this time for buying, selling or just holding on? Should you wait until markets hit 15,000 and then go discount shopping? In our view it is very difficult and futile to accurately predict market directions. It is mostly in retrospect that you can spot amazing but 'missed' buying opportunities. So let's not get into the guessing game.

At times of such panic, you need to look at your portfolio and ask some simple basic questions. Are the causes of this panic domestic or external? Does the economic weakness and the debt crisis in the US and Europe affect the companies that you're holding? Does it alter the long term fundamentals of your company's business? If yes, then you should seriously consider selling those stocks.

The good news is that there is always a great opportunity in every adversity. Remember, there will always be people who would be dumping everything out of sheer panic. Short term turmoil could easily blind them from seeing the long term strength. And that is the golden moment a value investor dreams of. When there's bloodbath on the streets, it is the perfect time to go bargain hunting. Choose companies that you understand well, that have strong brands with pricing power, low debt, efficient and honest management, and robust long term growth prospects. That's the perfect recipe for sailing through such times.

Do you think this is a good time to buy stocks? Share your comments with us or post your views on our Facebook page.

01:18  Chart of the day
 
Broadly, the Indian stock markets have witnessed a downtrend after peaking out in November 2010. With today's sharp decline, the benchmark indices have reached the lowest levels since June 2010. Today's chart of the day shows that amongst the BSE sectoral indices, realty has witnessed the steepest decline of about 46% in the last one year. The real estate sector in India has been mired by issues such as corruption, scams, rising interest rates and so on. The other sectors that have lost significantly include power, FMCG, capital goods, consumer durables.

Data source: www.bseindia.com


01:49
 
The outlook for the Indian power sector is getting more complicated than ever before. As projects get stranded or shelved due to lack of coal linkages, environmental clearances or funding shortages, any respite is welcome. China meanwhile is trying to cash in on the opportunity by offering cheap loans to the Indian power sector players. The domestic power firms who are struggling to finance projects after local interest rates rose to 13% from 9% in the past two years perceive this as a lifeline. Loans from Chinese banks would be available at least 2-3% lower than the rupee debt. This will make a substantial difference for power projects wherein costs run into millions of rupees.

At the same time, power equipment suppliers in India are feeling threatened by rising imports of Chinese equipment. Orders for 80,000 MW of equipment have been placed with Chinese companies. Cheap Yuan loans will fatten the order books of Chinese equipment suppliers, which have large capacities to meet the demand. But at the same time this may dampen the prospects for the likes of BHEL and Larsen & Toubro (L&T). Keeping in mind that in China is adding 100,000 MW of new power while India's total capacity stands at 170,000 MW, the latter certainly needs to make some compromises to match up to the speed.

02:33
 
If Mumbai is the financial capital of India, Bihar would probably bag the honour of being the corruption capital of our country. Lack of governance, wide spread corruption and poor law and order scenario have impacted the growth profile of the state for several decades. However, things have changed dramatically in Nitish Kumar's reign.

Today, Bihar is one of the fastest growing states in the country. It is also attracting private investment in the road sector which was a dream in the past. Earlier, private developers were a bit hesitant in building roads as toll collection was a major challenge for them. However, with the law and order situation improving many developers have expressed interest in Bihar. Recently, two road projects worth Rs 25 bn were awarded to private developers. The Public Private Partnership (PPP) model is also gaining momentum here. With the developer confidence increasing, road connectivity in Bihar is expected to improve at a fast pace. Enabling connectivity through roads allows transfer of human and physical capital. This brightens growth prospects and instills business confidence. It seems that, 'Aao Bihar' (Come to Bihar), a new policy unveiled by the government is making a meaningful progress in the right direction.

03:11
 
The weekend has come early for bank employees in the country. Nearly one million bank employees in various state run, private sector and foreign banks are on strike today. Cheque clearing services and public sector branch operations have thus been affected across the nation.

The main reason behind this strike is the call that public sector banks should not be privatised and the government's stake in these banks should be maintained. These employees also oppose the merger of state-run banks and the outsourcing of permanent bank jobs to the private sector. They also want recruitment in the industry to come back in full swing and issues on pension and working hours to be solved. This strike has come post two rounds of failed negotiations with the Central Government. Thus, it would probably still take some time before these issues are fully resolved.

03:51
 
China has grown at a mind boggling pace until recently. The country has seen its growth subsiding in recent times. The government has blamed it on higher inflationary pressure that has led to monetary tightening in the country. But is that the only reason? A leading business magazine has identified another reason for the slowdown in China. And this is the lack of credit given by the banks to the private sector. The banking industry in China has seen phenomenal credit growth. But most of these loans are given to the public sector companies as the government has been favouring them. The result is that while the run-of-the-mill construction activity has grown, the country has lagged behind in terms of growth led by innovation. And it is a well known fact that like a company if a country wishes to grow at high rates over a long term period then innovation is the key driver. As a result, the private sector is keenly awaiting the new government. Hopefully they would have a more liberal attitude towards the private sector. For a country to grow at high rates, private sector participation is essential. Hopefully, China realizes this sooner than later.

04:30
 
Indian stock markets have been trading deep in the red today on weak global cues. At the time of writing, the benchmark BSE Sensex was down by 462 points (2.6%). All sectoral indices were trading in the red led by IT and metal stocks. All Asian stock markets too were trading in the negative. Taiwan and Indonesia were among the top losers.

04:50  Today's investing mantra
"Debt is the worst poverty" - Thomas Fuller
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10 Responses to "What should investors do in times of panic and crisis?"

pragnesh patel

Aug 13, 2011

Yes its right time to enter the market always buy on exceptional dips and exit on exceptional rises u will definitely make profit.stocks like LNT, irb infra, voltas, auropharma looks good for long term may be 2 years

Like 

R. Mohan.

Aug 7, 2011

In times of crisis like this follow the SIP method of Buying in every dip. See what happened in 2008. How the stocks rebound later. So have patience and hold if u have bought already. OR Buy good stock now when it corrects. Dont mis this opportunity.

Like 

umesh karkhanis

Aug 7, 2011

Is there any specific reason as to why Indian Govt / RBI can not come up with Sector Specific credit policy with special incentives for Investment in Power or for that matter infra sector, so that we can stop this flight of capital at the same time boosting local cos order book?

Like 

Mony Narayanan

Aug 6, 2011

Definitely, the time for bargain hunting is on the horizon. With S&P downgrading US over the weekend, the next week is surely going to be interesting to wacth. Some of my stock picks during the blood bath of Oct 2008-Jan 2009 are up more than 200% still, even after the massive sell off last week......I strongly believe in the resilience of the Indian economy and the underlying growth story, so all set to go in once the valuations of my target companies come down....

Like 

C K Vaidya

Aug 6, 2011

I think the crisis in many Global economies is coming to surface for the first time, only now.
The direction of India stock market will be decided by FIIs. If they move to emerging economies including India, dumping the dollar in the process, our market will shoot up. If, however, theu pull out....
I think it would be prudent to wait for at least aweek before taking any hasty buying.

Like 

Chandrasekaran

Aug 5, 2011

Hello sir,
At present the situation can not give us any direct answer as we expect either avoidance or entrance is good because we all are entwined with rest of world and as well our own scenario also looks slippery, having these factors do you think that we can go to selective pick? Its absolutely, market for mutual finds and FIIs.They play the stake in troubled water for possible big fish, because the money that they use has got no restriction and the question of loss may be attributed to the nature of market movement!!!
INDIVIDUAL investors have to be care full with the strict stop loss or holding cash in Hand may be a good decision !
Regards.
Chandrasekaran

Like 

S.K.DAMANI

Aug 5, 2011

Dear sir,
Two observations on today's article. Sensex is at 17500/odd, to wait till 15000 would be taking a bit of losses on your portfolio. Better sell stocks today and buy ETF of Gold. When mkt reaches 15000/(if at all) than switch again. BY THE WAY S&P HAVE JUST DOWNGRADED USA FROM TRIPLE A TO DOUBLE A.
This downgrade was to come in the morning (US time) but was held back, Dow rallied and than after mkts closed it is informed that while others are waiting S&P have downgraded the US. Expect anothe down turn on Monday in our mkts., Stocks to Buy Cummins, Fortis health and Titan and ofcourse Gold.
Regarding Chinese availability of cheap loans and placing orders with chinese companies rather than BHEL and L&T is sad news. It is like a bad neighbour first helping you with monies and than entering your house. Ultimately he is going to do much more damage to your house, rather than help you. We all no china has the intention of ever increasing its territories as well dominating the world. Already in North East and Ladakh we are facing problems. allowing them to enter our businessess would be a very very wrong steps.Just think, does Chine allows other countries to enter its space. Even Google was banned. They are much much smarter than us. No need to comment on our politicians and waste time. ( The biggest rot in the whole world).
Thanks Damani SK

Like 

DrHA!

Aug 5, 2011

The market has not made base to have turn around. The global crisis is not yet over. Hence one can wait till the market stabilizes.

Like 

Dalip Singh

Aug 5, 2011

This to my mind is a buying opportunity which I was waiting for a long time.Blood Bath for some glorious opportunity for some.I am accumulating and adding good stocks mostly recommended by Equity Master in stock select.When everyone is selling wise are buying.

Like 

anupam garg

Aug 5, 2011

the day of reckoning has arrived, finally...had been waitin & waitin for this 2 happen, eventually lost patience & bought some...only 2 c their prices crashing down today...mkt timin is not child's play, hence proved

now i don't hav nethin left 2 buy today / tomorrow...guess its time 2 4get my portfolio 4 many yrs..

Like 
  
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