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Monday, January 31, 2011
INVESTOR EDUCATION SERIES = WHEN STOCK MARKET CRASHES = WHAT SHOULD YOU AS INVESTOR, DO?
STOCK MARKET CRASH
WHAT SHOULD INVESTORS DO?
Stock Markets in India are on a downward trend right now. The indices are plunging.
Almost every stock is registering lower and lower prices daily.
There is selling pressure in the market.
Now – what should a medium to long term Investor do?
I am finding many mails of this nature spamming my mail box.
It is becoming typical paranoid mind-set.
A healthy stock market comprises of Bulls and bears in at last equal numbers – with bulls being slightly more.
Look at just a few of the Positives of India now :
Indian Economy, is registering one of the Highest rates of Growth in the world.
In current Results season, a very large number of companies have already produced sterling quality of results – with excellent to extraordinary rates of Growth.
Monsoons have been more than ordinary. They are very Good and current year will produce more agricultural products than last year.
Demand for consumer products is registering healthy rates of growth.
Demand for capital goods and industrial products also is registering healthy rates of growth.
Can there be more positive news for a Stock Market?
The only Negative factors as I see are –
(i)Food Inflation: For food inflation, I lay the blame squarely on the doors of the Food Ministries at the centre and in the states. Look at Aviation Ministry. When Airlines increased prices, Sri Praful Patel immediately warned them to keep prices down – and they did comply. But, the Food Ministries are in no mood to fix some upper price levels for at least essential commodities. And warn traders not to exceed them. Some body sent me an SMS that an essential commodity like onion (Rs.65 per KG), comforts like Petrol (Rs.65 per litre) and luxuries like Beer (Rs.65 per bottle) are all selling at the same prices – and yet Government is unwilling to ACT. They are making ASTROLOGICAL PREDICTIONS that some time in future, prices will come down. Stronger action is needed from them against price hikers and hoarders.
(ii)FIIS vs DIIs/MFs: FIIs are not participating in big numbers at the moment. But, I do expect them to return back to Indian Market soon. This is one major reason for prices crashing. I strongly feel that the health of our stock Market should not depend so much on FII participation. A Healthy market should depend more on Indian participation. Unfortunately, the Indian Investor does not seem to be getting adequate Net returns from our DIIs and MFs. I always find our DIIs/MFs rewarding themselves and their Agents very heavily – and leaving the investor who is putting his hard-earned money in the lurch. Very few DIIs/MFs are actually determined to reward Investorsfirst – before they reward themselves and their Agents. Agents are important – but not before the INVESTORS, whose money is shared by all these people. Every time an Investor incurs huge losses in the Market, he tends to go out – never to return. SEBI / IRDA must look at how much the Investor is getting vis a vis the DIIS/MFS and their Agents, and ensure a Fair and decent return to the Investor. If only the Focus of the regulators (SEBI /IRDA) and the DIIs /MFs is on ensuring a decent return to ACTUAL INVESTOR, our market will be a lot stronger.
(iii)MOOD CHECK : The moment we catch a cold, we feel we have the worst possible disease in us. This is true of Indian stock Market especially. If X starts selling, Y follows X, Z follows Y and a spree of selling starts. Bad news – sorry, Bad rumours spread too fast. This mood needs reversal – especially because, many companies have performed excellently and some extraordinarily. Some naturally performed below par.
(iv)When Markets come down – let us remember that this market is bound to go up again. This was what happened at 2009 beginning too. That was a Great opportunity to BUY. Now also is an opportunity to BUY - for medium / long term Investors. Let us start accumulating at current lower prices. My strong opinion - to medium / long term Investors is – read Warren Buffet again. Look at companies which have produced excellent results. Invest in them NOW. Don’t fall for the SELL, SELL, SELL mania that is spreading unnecessarily. FIIs will come, other investors will come, markets will go up again. It has always done that.
(v)Do tell me, your opinion please.
(vi)Good Luck, Medium / Long term Investor!
PS : SEE THE NEXT POST ON Investing in Troubled times at : http://wiseinvestmentideas.blogspot.com/2011/06/art-of-investing-in-troubled-times.html