What happened here!

I remember the days when recruitments happened in our B-School ... India was a good place to go to ... not surprisingly Indian companies did offer similar packages to what some of foreign companies did... yes the Sensex was at 16000 and on its way up! when it touched 21! I started to wonder if I had missed the boat....In the hidsight though whatever happened; happened for good...

This morning when i checked all NAV's for the MF's I am invested, I happened to have lost a significant chunk of money ... however, investing in funds was any day a better idea than investing in stocks... nopes ... this is not a crib blog ....


It is amazing about how dramatically things can change; you lose 30% of the market cap in 5 months ... what changed is the bigger question. Specifically in case of India things dont look brighter any more ... you have a soaring inflation; an unstable government; a haphazard monetary policy (let alone the fiscal policy) and a frightened 'white' ghost. The never ending capital flow into the indian market has suddenly figured out a new tourist destination or rather is just sitting at home trying to save itself from depreciation. A large current account deficit which eventually results into a weaking currency is adding salt to the injury at the central bank in India. 11% inflation (reported) is a huge number and today we saw one more CRR hike to take out the liquidity from the market.

The India central bank (RBI) has not been premptive in chasing down the inflation and one cant blame them because growth was the only objective till last year. Also, I must say that the policy makers have got it spot on in terms of the foreign currency reserves. I remember my argument with my economics professor in B-school over spending FC reserves for long term infrastructure projects in India. Now when you have dollar leaving the country, the central bank is able to restore some semblance in the currency market by selling these reserves .. if not; the INR must have been down to 45 atleast adding to the existing inflation woes.

So what does all this translate into ... the market is down 30% YTD and is there more pain left? .. I think yes.. India was an overbought story ... the stock market was a crazy place ... analyst's had ego's as big as an elephant's shit ... Being into hedge funds; i have learnt that the first golden rule of shorting any equity is when the management of that company doesnt wanna own that stock at the prevailing price ... and again the first golden rule of buying an equity is when a marginal buyer see's a huge value left in it... I think India is caught somewhere in between ... Even though stocks have corrected as much as 50%, we see no corporate intending a buy-back (may be one argument is that debt trades at high yields at the moment) ... second reason is that there has to be an earnings revision and this can only be on the downside at the moment and third and the most importantly you find cheaper markets than India with ample liquidity coming either from agricultural or energy commodities.

Having said what I have, I believe we may be approaching the golden rule for buying equities, how far is it depends upon each specific stock. If you believe that India can grow at 6% p.a the indian GDP doubles in 9 years and taking into account the target inflation rate of 5.5%, your money invested in stocks can double in 6 years. Hey thats not a bad deal at all; however for now I wake up in the morning and ask myself .. 'hey what happened here'...