Wednesday, August 26, 2009

Erratic indices - a market watch

I would like to discuss the extreme volatile sessions of our stock market experiencing by last few months and the related reflections on investor community with a recap of recent market history. Such unstable moves are generally familiar to the experienced investors, but extremely difficult to comprehend for freshers. People who make investment decisions on tips or rumors are the farthest victims of such volatile bops occurring in indices.

It was severely destructive to those who entered in the market around the crest of Bull Run in Dec 2007 - Jan 2008. A large number of investors vanished from the market forever as no way back. Lost their entire savings of life, a few of them ended their lives. I personally know some victims, facing enormous financial stress and family problems due to the steep and unmanageable losses they faced. The irrational upward pace of indices, stories of the exaggerated gains of colleagues/friends and the baseless predictions/tips of spurious market experts trapped a majority of investors at the peak levels.

What is the root level reason of such drastic loses which forces someone to even end their lives. I would like to summarize the answer in few words, Lack of genuine knowledge. I am not skipping the greed factor, but the origin of such obsession too from lack of certain comprehensions. I wish to stress on the words “Genuine Knowledge”. What is that ? Where we get such valid information related to investments? Or how can we realize whether recommendations, suggestions, predictions or tips are genuine? There is no any defined parameter to measure the content’s legitimacy. But I can say, if you are getting logical answers for credible questions raised from your sense after read/view/hear the content, you can include it in your watch list. Still you have to examine and find the adoptability of that content by thorough study. Lack of such comprehension is the only reason, makes some one greedy, or forced them to invest on the above said hot but non genuine tips/rumors.

But still, a very few of the investor community is cautiously responding to the market from the lessons they learned. The majority of investors are still in row of seeking easy tips for short term gains. (We always forget things to remember but keep remember what to forget.) They are putting their hard earned money without even the basic knowledge of economy related issues, company/scrip, most of them even not aware the product/service the company offers.

Let me recall the then market scenario while sensex at 21000 levels around Jan 2008. The so called market scholars were talking about the coming 25,000-30,000 and even to the 40,000 levels. You will surprise if check the statistics in those days, the investment figures of FIIs and our great intellectual Fund Managers. 90% of our Fund Managers were proved their worst competency in the bear market, a phenomenon, which most of them never experienced in their career. The great, so talked intellectual investors and some real brothers of Warren Buffet also busted out, even if, they are still making prediction on the market. It is really witty if you go through the then comments/predictions of these great people.

Any how, It was a crash from 21206 to below some 8000. Some of us burned exceedingly, but still struggling to survive. Some pledged not to make a look never to the market again, But that inevitable collapse raised a lot of questions and provided some answers well. Its also significant to quote here that, the newest in that category of baseless predictions is “Sensex at 21000 by August 2010”. Be careful!, these are the people who build castles in the air for 40000 levels in 2008. I am agree, this level is possible with in the time frame, but no solid base existing for a firm prediction.

The market were slowly recovering on the mixed feelings of parliament elections. The election processes started on 16 April where the sensex was at 10947.40. The previous day of result declaration, May 15 it was at 12173.42, 11.2% gain within a month. Just see the emotional reliance on market. The historical victory of congress leaded UPA coalition and the hope of a stable Govt made a thrilling effect on the market on the first day after result. 18 May 2009 Monday, the sensex rocketed a 2110.80 point in a single day (20% ). Again the sentiment driven ecstasy.

We crossed a long way even if the stock market indices are not the exact indicators of growth and economical soundness of a country. The market always responds in advance. We crossed the 15000 levels in early weeks of Jun this year. A huge 7000 points gain in just three months!. Compare, how many years we took to reach the 21000 level. Now we are easily jumping 1/3rd of that or 7000 points in just three months. The changing scenario!

Can we think it as a preparation of another bull run? or Will the market fall again to those down levels? How we react to the market? …. Do you think you are missed the bus? or Can we enter now the market without fear ? A lot of questions are there. I think, the following lines may help readers to presume answers hopefully.

The reasons of global economical slowdown is screening as Sub prime crisis, undisciplined banking practices and other related sentiments seeded especially in US and Europe. Developed countries showed the symptoms first, affected worst and will lasted for little more periods. According to India, we tainted much later but started recovery earlier than the US and Europe. The world market is still struggling on negative sentiments but we just rocketed on the election results. Everyone were suspicious on the strength of this market, is it continue? Is this stable? Again, the above said experts started worthless comments. 17000, 19000, 20000, and some even dared to predict a 25000 level within three months. But the market again fooled everyone.

Our indices showing trend of a return from the miserable march levels especially in the wake of election sentiments and the stimulus packages which results substantial liquidity. A big part of that money flow is reaching in our market through various ways. The trust of FIIs on our economy is hiked, retail investors also in the row. In fact the fuel of the shoot up was not our institutional or retail investors. The power behind the boom was the confident Foreign Institutional Investors(FIIs) with their positive fervor. They always keep a trust on our economy, but scares the Indian political circumstances. But the swearing of UPA Govt as well as the end of political uncertainty made them confident and they started pumping huge money to the market and still continuing with frequent profit booking.(One of the reason of large scale fluctuation)

If the Govt action favours the market, it can even cross the previous heights. The strongest banking system was the key factor which saved the Indian economy and will keep support as our great strength. Growth expectations, projected internal production figure from 4.4% to 6.2%, overwhelming industrial growth graphs etc.. all are in positive line. Govt’s favourable stand to the market will give more stability to the market in coming days. The divestment news of public sector companies is thrilling news to the market as usual. The mass and dynamic agricultural renovation programs planning by the UPA Govt is another vigorous factor for the market. The budget also had tremendous positive and deliberate motivational contents for the market in long term.

The negatives are, certain stocks are over valued as the entry price is an important factor of your investment decisions. So make the verdict very cautiously. The other negative factors are, global markets are still struggling, and will take little more time to stabilize. The steadiness of our economy is closely related to global markets up to an extent. So expecting a constant growth in immediate future is not logical. A numerous downs and ups ahead of us before the anticipated consistency in the market. As I said, the entry price is equally important to selection of stocks. So accumulate good stocks at good valuations in small batches at every falls.

A few history; It was not the first time market getting such a heavy crash. There were a 49% correction occurred in the market in 2000-2002. In 1973-74 it was 48%. The trend is to north. But is nothing comparable to some collapses occurred in global indices. US indices collapsed some 89% in 3 year span (1929-32). UK indices corrected some 72% in just 32 months (1972-75). The Tokyo Index crashed about 48% in just 9 months and a 64% in 30 months. I would like to stress here as, history will definitely repeat with us. My intention is, even if we are talking about the long term investment strategy, we have to be very cautious on the economy. We are predicting another bull run or mother of all bull runs yet to come. If so, I will say, mother of all crashes definitely ahead of that.

I think it is always better to scrutinize and perk up our own strategy than distressing about the market compositions as no one can challenge the market. An investor is a very tiny part of that phenomena. The direction of the market is guided by emotional sums of millions of investors. An investor cannot change the direction of market. Means, we have to rationalize our investment decisions attuned to the market way. Never try to defeat the market. It is impossible for a common investor. A person who makes decisions according to the market sentiment will never lose.

Market is big, market is always right, respect and follow the market trends for making good money. There is no need to be miserable. No one missed the bus. The bus is still there and will always, with enough seats for you. You can even make this time right for you, if you select stocks with utmost care. A large number of undervalued stocks in every emerging/potential sectors are still available in mouthwatering prices. Still you can apply the great accumulation theory, will do miracles in long term.

Readers are requested to comment whether negative or positive will encourage me to share more in this row.


  1. Excellent Post on Indian Stock Market!!
    Shabu , You should surely be one among top stocks analysts of India who knows our market trend closely to a large extent.

    Thanks for sharing
    - Venkat

  2. Good read !!!
    It's always good to be reminded by psychological aspect of market. That will make ourself humble and make our thought process clean.

  3. Hi Shabu,
    This is an excellent article and eye opener for beginners.Its my personal experience too that market is always right. Game is only that you have to be with the trend. Thanx

  4. Well said,u have grate knowledge and experience in this field.Good luck and wishes.

  5. Hi,

    Thanks to all for the inspirational comments. I really enjoy this kind of appreciation and will work hard to bring more worthy issues in this row. Once again thanking you.


  6. Sir,
    You are right that lack of genuine knowledge is the big problem. The market is always right. If we analyse results, news and other data's we will understand why stock went up or down in past. We should not criticize market or stocks for going up or down against our expectation. We should realize the fact that insiders and experts gets data before us. When experts recommends stocks they will describe only the positive things about the stock. As market is always right we should analyse data and try to find why the stock is trading at current valuation. Then we should try to find what are the -ve things that may affect the stock in future. If we buy stocks recommended by experts with out analyzing we will book loss if the stock start falling sharply. But if we invest after analyzing the stock we will hold it till our target is met.

    Now a days most experts are bullish. But only few experts like you were bullish when sensex was at 8000 levels. I remember one of your article where you said there is no 13000 points left to fall. If we can bear 13000 point fall why can't we bear another 2000 or 4000 fall. So we must check track record of experts before investing. Many of us are thinking that TV experts are fools. But they are making money by trading against their own comments. We should be careful that experts don't make money by fooling us.

  7. Dear James,

    Thanks a lot for such a comprehensive and worthy comment. Readers like you are really matters me and always an inspiration. You are absolutely right.. ie. experts makes money by simply talking on stocks and the common investors loses money by blindly follow them.


  8. Shabu,Nice post at the right time ! Hope some of the experts read that !

  9. Thank u Kumaran,

    I too hope so!

    regards ..

  10. Hello Shabu,

    Nice article to warn new investors from getting carried away by doing shopping at the current juncture of excess euphoria.

    The ongoing markets is purely a Trading market. Investors should wait for a deep intermediate downtrend before investing their hard earned money.

    Even Traders should ensure that they observe the Stop losses for their trades very strictly.

  11. Thank you viral for the encouraging comment. The market is more in a trading trend, but the SIP manner investment in undervalued stocks have still scope.


  12. Shabu Sir,

    Very Interesting Article.

    I liked this sentence "The direction of the market is guided by emotional sums of millions of investors" and this is dam true..When investor come to the market they bring their own problems which they shouldn't bring. My Friend Brother lost total 4lk when he invested @ 19k level. Thanks once again for excellent article.



The blog is associated with information on Indian stock market and author’s investment view points on various emerging stocks/sectors. The contents discussed in this blog are purely my own personal opinion and in no case weigh it as any kind of recommendation for stock market investment. The sheer purpose of this blog is to educate the interested community on market related subjects based on my experience and I am, in no way, responsible for investment decisions based on the contents described in this blog.

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