Financial markets are one of the most perplexing ground fields on the planet. For long, people have been spending hours to decipher how they would behave tomorrow and the day after. Just a couple of weeks ago there was nothing short of euphoria in the market. Indian equities were rolling on the vertical path and nothing seemed to stop them. And in fact, an investment banker was quoted saying there are no negative triggers in the markets.
One who has read ?Manias, Panics and Crashes?, a classic by Charles Kidleberger can safely say that this was the best time to exit. One should be a good seller when things are really rosy and cheerful. However, this turn on the bulls and the noise reaches a decibel level high enough to overhear the advice Kidlelerger readers can easily hear. This differentiates the men from the boys.
The market has seen a fall of more than 1,000 points in just one week and it is attributed to global sell-off. Some are watching the sub-prime mess in the US and others are observing the yen movement against the US dollar. Many are also concerned about the leverage involved in equity markets of China and India as the domestic individual investors, having shallow pockets, borrow to go for larger stakes.
Reasons may be plenty and, for sure, they have not cropped up ?all of a sudden? to ensure that the ride may not remain smooth anymore. The entities that were talking 20,000 levels shifted immediately to 13,000 to 14,000 levels. The loss of few lakh crore of market cap made people think for a while.
There are various types of investors; some of them are keen to know how much more it will go down. Some are still trying to withstand the wounds inflicted on them. Some are still hopeful with every market rebounce. And there are some who are keen on ?bottom fishing?.
For all of us things are panning out differently. Though the Indian equity markets are following global sell-offs, there is little that has changed. The fundamentals are in place. Barring factors like firm crude oil prices, stretched valuations all other things are in place. However, experts reckon that the stage was all set for a correction. And the current volatility is being seen as nothing but a mechanism – ensuring exit of excesses. Where will the market settle is the million dollar question and should be left to the time to answer.
For those who are still in the markets the best thing to do is to exit leveraged positions and short-term punter calls. Bounce backs are to be used to get out than shopping. It makes more sense to view the market as it is than how you want it to be. Also note that investors who work on one emotion called ?hope? are worst hit in any securities market.
For those who are holding cash and want to invest in the market can do so with a long-term view in mind only after taking a stock-specific approach. The fact that many of us tend to forget is a fall of 1,000 points in the market may not be the ?bottom? of the market.
There are no prizes for guessing the bottom of the market and let us understand that most of us who happened to buy at the bottom could manage do so just because we emerged lucky.
It makes more sense for the investors to let the market stabilise than try and time it. Catching the falling knife is a dangerous task and an avoidable one. Stock-specific approach with a cool mind can help investors tackle the volatile markets better.
