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Economic crisis in the United States
: In the United states, an issue known as 'sub-prime issue' in the
housing market, is still troubling the stock markets and having its heavy
ripples on the real economy. It started sometime in the middle of year 2007.
"Sub Prime loan candidates have a poor credit history, it
is likely they will have defaulted on loan payments in the past".
This crisis in the United States and global financial markets affected the
Indian markets heavily because US markets are so important to the rest of
the world including India. They very FIIs (Foreign Institutional
Investors) who took the SENSEX to highs of 21,000 points brought it down
to almost half that value mainly because they needed their Indian
investment money to handle their problems in home markets.
Americans save less and the problems from their perennial lending and
spending is coming out now. It is yet to unravel completely according to
many experts. So we have to expect the problems from global markets to
continue. Also, it is being said that the United States is on the verge
of a recession or already in one. |
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Political turmoil in India : CPM as always has backstabbed the
Manmohan Singh Govt. on the issue of Nuclear deal. Govt. is awaiting
verdict in a confidence vote that's coming up soon. One Kerala politician
remarked recently that the CPM realise something was important for the
country after ten years have passed. By that time, country, would have
lost all chances of benefiting from that particular development agenda. He
is absolutely correct. They seemed to not want to hear the word 'America'
leave alone the Nuclear deal. Political instability as you know, is always bad for
the markets. |
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Inflation : Inflation is defined as too much
money chasing too few goods. RBI's target of 5% inflation has been long
broken and now the figure in India is approaching 13% in an alarming rise.
Such a situation causes general gloom; cutting spending by the customers
which is quite a big negative for the markets. |
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Interest Rates
: When the bank interest rates are held high, (RBI does this to
counter inflation). High interest rate hinder the growth plans of corporations and small
businesses alike. Also, the customer cuts down on spending on things such
as Cars and Real Estate because they cant lend money cheaply from the
banks. Hence it affects both on the growth front because the companies can
not lend money from banks due to high interest rates and also in the
consumer spending front due to excessive cost of goods. |
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Oil: Due to
the confrontation the west is having with Iran, other supply side
constraints, and due to the increase in
demand from emerging economies such as India and China, Oil price has
risen from $70 a barrel last year this time, to close to $150 a barrel at
the moment. This phenomenal rise is extremely harmful for countries such
as India who depend a lot on imported oil. The very inflation that we
talked before, stems mainly from the fact that Oil prices are high which
increases cost of each and everything. |
The loss I incurred could have been avoided completely,
if I acted in the month of January by selling all my holding as soon as the
crash begun or slightly before that. It could have been at least partially
erased even if I had sold it any time later after the crash started. As late
I get to sell the holding, losses would have increased proportionately as
the fall was incessant.
It is also true that the market will eventually erase my loss
and put me back on a stable gain one or two years from now if I do nothing
with my present equity portfolio
except occasionally exiting unfavorable companies and entering new, hotter
businesses. But as of now, my earnest
attempt to get richer through the share market lies in tatters.
But my education of the Indian businesses,
Indian and world economies, and financial markets movements etc have been of
immense value. Also, my confidence in Indian economic story
only remains further strengthened. Because, to a great extent, I now know why the
Indian markets are behaving the way they are; factors more external than
internal as you can see from the list above. Since I have that knowledge, I
am not perturbed much.
However the sad fact remains that the money I could have had, in my hand,
for verity of life's needs, has gone with the wind.
Most of my friends who are into the markets had the same fate
except one who is an elderly but new in the market. This elderly friend of
mine correctly sold everything at the right time. I think he did it because
his mind can take few risks mainly due to his age and age related
insecurity feeling. The moment the fall started he started calling us worried.
However, he turned out to be a perfect predictor who have seen the future,
though he knew little about the markets and had hardly any experience in the
market. Mere luck and his lack of appetite for taking any risk saved him.
Finally, I have friends and relatives who are full time into
analyzing and trading stocks for close to ten years. None of them asked in
clear terms to sell it all or at least those which I stand on profit. Many
of them now say "I told you so". But the truth is they never told anything
and they never knew with conviction that trouble is brewing. If yes, why
didn't they send me an e-mail and told me "sell now or be dead in six
months". The fact is, they never understood it with any clarity. Same is the
case with numerous analysts and experts we can see in the popular media.
But it is like blaming those who interpret the horoscope and
predict the climate. You know, it is always a fifty fifty.
Let me repeat the golden rule in my
Online Share Trading Guide again. In the equity
marketplace, start early and stay with good companies. Years down the line,
rewards will be remarkable, for sure. Understanding the potential of the
market, starting early, moving systematically is 'long term' all about.
- TP Gopinath
for CalicutNet.com
Please write your valuable comments in the online share trading forum.
