|» INVESTING IN INDIA|
There was a courageous "Hip" when the US markets opened on Monday, March 17th. The Federal Reserve, you see, had just agreed to pump in another USD 100 billion into the system over the weekend. And JP Morgan had agreed to buy out rival Bear Stearns for USD 2 per share. To put that in perspective, the Bear Stearns stock had closed at USD 30 on Friday, March 14. How a stock can be valued at USD 30 on the last day of trading on Friday, and then be sold - the entire company, lock, stock, and barrel - for USD 2 suggests someone found out something pretty bad hiding in the books of Bear Stearns.
On Wednesday, there was a louder "Hip", as the Dow surged 420 points - a solid gain of 3.5%. This time the market was celebrating the sharp cut in the federal funds rate from 3.00% to 2.25%. The rescue operations by the Fed are in full swing. The stock market cheered and share prices of stocks like Lehman Brothers (who many expect to be the next Bear Stearns) surged 45%.
So, now we have a "Hip", a second "Hip" and should we be ready for a "Hooray!"?
Huh? Why would there be a "Hooray"?
The US economy is in a recession. Statistics to prove this may be out sometime over the next few months. But the actions of consumers have already indicated the slow-down. People in USA are shopping less, their homes are worth less, and credit card defaults are at record highs. What is at debate is the extent of the slowdown. Data compiled by and commented on by CNN indicates that the US economy is in pretty bad shape. Of the 7 indicators that track the US economy, Inflation shows up as "under control - for now" and Industrial Production gets a "growth outlook steady".
Everything else looks dismal. With no sign of a turnaround anytime soon.
Ben fights the 7 dwarfs
The US stock market is likely to deflate into a "Huh?" and not a "Hooray". Any rally will be a dead-cat bounce.
Knowing the underlying problem - of a US economy in trouble - is, unfortunately, critical to the understanding of our very "made in India" Sensex.
Our superb command over the English language and our ability to dazzle the world with our slogans like "India Shining" and "India Incredible" put us right there in the spotlight, on centre-stage, with the short term investors.
Our well educated lawyers and our sharp-knifed brokers were ready with the financial structures of P-Notes to offer any piece of India to anyone willing to buy.
The policy makers, hungry to show that India was a success, looked the other way as P-Notes were issued with freedom, and proudly rolled out statistics to show how foreigners loved Indian stocks.
The Reserve Bank of India remained - and still remains - the only institution to really worry about the long term implications of all these financial engineered products.
Well, those foreigners in a foreign land are now in deep trouble.
Maybe we can coin a new slogan now, "India on Sale".
So, Dalal Street and the Sensex will do a bit of "Hip, Hip...Huh" for some time. Maybe 3 months. Maybe 6 months. Maybe 9 months. I can only guess.
I don’t know how low the Index can go.
But I do know there is a lot of value in the Indian stock market and that the patient, disciplined investor will be rewarded.
And then you can chant, "Hip, Hip, Hooray".