By Ruma Dubey
The markets have taken a huge nose dive! The bears are baring their teeth and the bulls seem to be resting, after the relentless run over the past few months.
Today’s crash of over 1000 points sent shivers down the spine. It’s like as though the BSE wants to outdo Dow’s crash yesterday of 1600 points.
So the big question dogging everyone’s mind is – what is the reason? All are saying it is because of the global fall – right from Asia to Europe, all markets are down. So then why are they all down? There is no one reason to pinpoint and lay the blame; actually no one really knows. It is being said that with the US economy showing signs of doing well, interest rates will go up, there will be higher bond yields and stoke inflation. Thus fears of higher yields and inflation have caused this global rout.
There is also talk of a flash crash. Some analysts say that globally, the algorithm based trading strategies, which are geared to low market volatility could have also suddenly caused the crash. With millions of orders heading only in one direction, the pressure on the breakers was overwhelming and that is what caused the crash. A very systematic crash.
And then of course in India, we are having various reasons being given – almost like a moving target, every day the reason is changing. First we started with the imposition of the long term capital gains tax; then it was the overall Budget and now it is global routing. What this means is that everyone is actually clueless and this crash has taken everyone by surprise.
The only reason which makes seems to make some sense is that valuations has gone way ahead of fundamentals, to ludicrous levels and what we are seeing now is just a correction. This is just an adjustment period, nothing to panic, no return of crashes of the past, no turmoil on Wall Street.
This adjustment might take a couple of days more but the markets will stabilize in the short term and do not be surprised to see the bulls trying to regain all that was lost once the climb back begins.
We are on firm footing; our markets have depth and are mature enough to take this crash. Prices of all mid and small caps are correcting. Maye this is the best opportunity to stock up on all the good ones that you had missed earlier.
Tomorrow is RBI meet and there is even talk by some that we could see an interest rate hike. That is an exaggeration. Yes, we could see a more hawkish RBI, what with the proposed hike in MSPs for farmers which will stoke inflation; there is real worry of the fiscal deficit yet, if the private sector investment bounces back, we could remain safe.
So folks, this is just a temporary blip, a situation of panic created by some. If you are an investor, you really have nothing to worry about and this is a great opportunity to buy. Use this small period of adjustment to stock up.