“We are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost... Unfortunately, a number of macro-economists have not fully learned the lessons of the great financial crisis. They still do not pay enough attention - en passant - to the financial sector.
Financial sector crises are not as predictable. The risks build up until, wham, it hits you". This comment from RBI governor Raghuram Rajan in an interview to a London-based 'Central Banking Journal' last week spooked the Indian markets or so it seemed as most equities as also the Nifty and Sensex witnessed a sharp decline amidst high volatility on Thursday and Friday ending the week with a second consecutive loss.
So was it the Governor's statement that sparked the sell-off? We don't think so and were already of the belief that the markets were vulnerable to a price correction. The governors statement and a nervous global environment just seems to have coincided with the fragile situation of the stock markets.
In fact in our issue of Monday July 28, our lead story titled 'Correction Due?' in this segment, had examined the probability of the market trend softening after the sharp rise of the previous many weeks. Not many were in agreement and some called our stance 'over cautious', while the more optimistic called it ' premature panic'.
Then again in our issue of Monday, August 4, our lead story titled 'Correction Unfolds, Volatility To Increase' reaffirmed our view and stated “that there is the likelihood of a further decline unfolding amidst high volatility”. We went on to say “In this situation and in the midst of the unfolding correction the advise to short term investors and traders is: book profits and re-enter around 4 - 5 % below present levels. For long term investors the advise is: Stay Invested!”
Perhaps we were right. The 30-share BSE Sensex shed 0.6% in the week to close at 25,329 levels, while the Nifty was down 0.5% at 7,568 levels. This came after the previous week's fall of 2.5 %.
So what next? Our technical analysts team continues to believe that from hereon, market volatility will increase further. They are also of the view that the correction will continue across a time span of over a few more weeks. Yet, they hold the view that the primary long term trend of the Indian markets remains strongly bullish and reiterate their statement that: 'For long term investors the advise is: Stay Invested!'
So in this issue we have shifted focus to the long term. We got across to a number of equity experts to gauge their views and asked them to pick stocks Best to 'Buy and Hold' for a three year term. We also asked them to identify stocks that seemed overbought and merit profit booking. Their views are reflected in the cover story of this week. 'What to Buy, What to Sell?'
- Deepak Sahijwala