If the first crisis was not enough, in came the second one. But this was not a fresh one, in fact the ‘beginning of the end’ courtesy Mr. Jhunjhunwala of first crisis. The bailouts, the easings are showing their side effects. It looked similar to a disease which was not strived to be cured, in fact it looked like the doctor kept the patient comfortably on respirator till his condition worsened.
Quantitative Easing – the word draws attention but it’s simply fusion of fresh money into the US market by selling government bonds. QE1 and QE2 tried to elongate the sluggish economy on respirator. Heart rate showed improvement for a while and people rejoiced that the disease is over. As long as the patient’s treatment(US economy) was funded by the wily zamindar(China), patient hoped for a recovery.
But the deteriorating mechanism was not helped by the employed population. The very factor that make US happening – extraordinary care of it’s citizens has instilled an idea into it’s working class. An idea that we are privileged to be here, we are not going to compete with people from emerging economies. We do best whatever we do. This attitude justifies the numero uno position US has been precariously holding onto somehow. But the writing is clear on the wall. They may not be able to sustain it. They should not for the benefit of THE WORLD. Whenever US is in trouble, it seems the world is about to end. Such centralization points to the feeling that we all are subjects of a single patriarch.
Going back to the patient analogy, he is showing no urgency in exercising his moving parts. High unemployment rate suggest that US has hardly been vigilant about it’s own intra-structure. Why US citizens are not preferred for jobs ? What extra they demand as compared to their peers? Why Indians and Chinese are hired by US companies ? If the patient is happy by borrowing help from more active patients then God knows how long he’ll live. Interestingly, this situation arises when people are staring down at the end of their life.
As I write this, QE3 will be ready for launch. It will be interesting to see how long this will go on. For sure, US government debt will increase beyond limitations. Credit rating may come down to A+. More mayhem is possible at the Wall Street and emerging markets. FIIs, the overseas investors are credited with driving the Indian Stock exchange. Its during these crisis, they ‘astoundingly’ decide to withdraw funds from India to save their face in their origins. We all agree that there is a lot of cushion for growth in India. Had Indian investors been intelligent enough to park their funds in equity, these situations would have been avoided to some extent. But the saving habits have denied that decoupling. Saving is understood by many as the money lying idle in CASA bank accounts. Of course, that’s true. Then you ask yourself if you need that fund in near future. The answer is – NO, I don’t think so. So what am I getting with this money ? A 4% annualized return!!! HAPPY ??? If you believe that you will earn more in future, then believe that the companies will do better. There is SCOPE in India for growth in MULTIPLES. Who will drive that ? COMPANIES…GOOD COMPANIES. How to identify them ? See past numbers…Profit Margin, Sales Growth, ROE. Should I become it’s shareholder ? Analyze the industry sector, EPS, see if it’s undervalued (P/E). Buy CHEAP, sell EXPENSIVE – a basic principle taught in NURSERY. Read management discussion in annual reports to get an idea about it’s future plans.
In fact, investment in equities (for sufficient time period, diversified portfolio) is saving in stricter sense which also gives higher average returns. But the drama of a collapse, the panic created especially to trigger downward run has prevented many to show the courage to invest when the bear is in motion. It’s only when the bear stops and FIIs come over again, the Indian investor feels comfortable to enter.
This attitude demands change, if we expect to be self-sufficient in any time horizon. These external forces can’t be dismissed, but their powers can be tamed if we understand the market. Speculation or intra day traders are also the culprit when it comes to misleading genuine investors. Relying purely on the technical analysis is not recommended for people who aim to ‘SAVE’ money through investment in equity.
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