Almost everyone is of the opinion that we are in for some nasty times especially in the US and other developed countries. India may not get impacted that badly, but could still face some impact.

I don’t agree that the bailout package in the US will fix the underlying issues. The underlying issue is that Banks have made bad investments via Derivatives and mortages. They have lost money on those investments. The only fix is to absorb the losses and build the capital again. In doing so, there will be a reduction in credit and liquidity.

The bailout package will at best allow the banks to sell these assets to someone (in this case the government). However I don’t think the US government will be stupid to buy it at book value. So the bailout package will help in creating liquidity for the toxic assets and get the system moving. However it is not going to reduce the losses and the subsequent pain.
I keep reading expectations of this mess getting resolved by early to mid 2009. I don’t know and I am not holding my breath on it. I personally don’t think the clean up will happen so soon. For history, look at the japanese experience in early 90’s.

Some guesses
So how does it play out for us ?
–        Real estate in india could be in for some tough times. I still feel real estate in india was driven by liquidity and speculation in the last 3-4 years. A 30% or higher annual appreciation in real estate is not sustainable.
–        Companies with debt, especially foreign borrowings could get hit big time. With the rupee depreciating and credit getting costly I would stay away from such companies (I personally have always avoided companies with high debt). The flip side is that companies with high cash holdings can deploy this cash profitably now (investments, cheap accquisitions or buybacks)
–        Companies with a lot of promise, but not backed by results have already got hit and could get hit further. During bear markets, PE (what investors are ready to pay for the future) invariably contracts.
–        IT, BPO and other industries could be in for a decent amount of pain. Mid to small cap companies could be at risk if they are dependent on a few clients in the banking sector.
–        Double digit salary hikes may not happen for sometime now.
–        Value investing will be back in fashion ( why not 🙂 ? ). I am half serious ! A lot of investors who made good money in the last few years and consider the stock market as a short cut to riches, may be in for a rude shock. A slow grinding bear market is eventually more painful than a quick drop.
–        This blog will see a 1000% increase in visitors …just joking !! couldn’t resist it. 

Whats next ?
As I have said before, no one can predict that. There were predictions on the sensex touching 25K by the end of the year. Now all the analysts and so called TV gurus have turned bearish.

I am starting to see some amazing bargains now, some new and some in my exisiting holdings. It is starting to feel like 2003 again 🙂 ..almost there, but not yet. So its time to get busy in finding great bargains and building the portfolio.

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