Few months back, I was worried because the way in which the SENSEX was soaring up did not relate to the growth story of the emerging Indian economy or the earnings potential of the individual companies... The equation seems to have reversed now. The interesting part…My sentiment is fear in both the situations ( both @ above 21000 levels and @ below 10000 levels) though the cause of fear and the reaction to it looks totally different..
Now, the worry is, the correction seems to be much worse than what it should have actually been considering the fundamentals. The correction in the GPP growth of India because of the US sub prime and Global recession is close to 2%. But then the market has fallen down from 21000 to less than 10000 levels which looks unreasonable. A P/E of 12-15 for top notch companies in sectors such as IT and telecom definitely looks like a very low valuation considering the EPS projections of these companies.
My take on this issue:
#1, I don't agree to the argument that this fall in SENSEX is because of the liquidity crunch. Every earning Indian seems to have a secured mindset with quite a bit of reserve funds which does not get into equity markets. Confidence of Indians in commodity and realty space as an asset class looks to be really good. Probably because we feel that we understand these asset classes as an investment opportunity much better than the equity space. The current downfall is more to do with the confidence and sentiments of people. Lack of awareness brings in fear that reduces our confidence and finally becomes panic….And the current levels indicate that it is a panic struck market..
#2, Even if FIIs has to pull out the money from Indian markets, I tend to believe that we have got the capability to absorb it locally and provide support at these levels to SENSEX.
So the fundamental problem with us is that we are either overly pessimistic or overly optimistic. We seem to lack rational thinking. We seem to get carried away just with what the media says. Our awareness and understanding of the economic system looks to be superficial that lacks common sense. We as investors should try and learn how this system works before we invest our money into it.
Should we be building an economy just based on the sentiments of the people?? We need level headed media persons, economist, politicians and decision makers to reduce the impact of the sentiment factor from the economic growth though a complete decoupling may not possible.
I believe that in situations such as this the media has to act in a responsible way with a lot of awareness and courage about the issue. It's high time that they realize the fact that they make up half of our economic consciousness. Media can have a great impact on our day to day decision making process and ultimately on our economy.
"While morality is all about how this world should work, Economics is all about how it actually works". Is Morality in economics a distant dream for this human race???
5 comments:
kiru, while u say that we are either too pessimistic or too optimistic & media drives us...my question is
are we driven by media only on Sensex?
is yes, why does the media does not drive Indians correctly?
has media become another profit/loss business rather than providing correct updates?
and got a lot of other queris...
i would say Media is always good at disseminate information irrespective of bullish or bearish market....but the investors without knowing the fundamentals of the company, who always heard the success stories of traders/investors during bullish run are invested money for short selling leads to more volatility in the market.
@venki, media plays a major role in shaping up our consciousness. And yes, it's not only in SENSEX It's in all other walks of life. Unfortunately, we tend to imbibe most of our perspectives from the information and experience (infact the base for reasoning becomes this) that goes in as memory which has got a tremendous influence on our psyche. To realize this think of the influence of media (including internet reviews) in your last 10 important buying decisions. Think of how many millions of discussions revolve around the hot news in major channels, news papers and websites. So it should be the utmost responsibility of media to act without prejudice and complete awareness.
@durai - Yes, I am in agreement with you when you say that the investor awareness to evaluate what the media has to say about something should become better. Also, I agree with your point about short selling. Infact, at times I tend to think if short selling should be banned. But then, end of the day it's all about the conscious choice that we make. And no one else can be held responsible for it.
But then, when you have to watch Jaya news and kalaingar news back to back about their perspectives and revelations about a same incident you can only laugh at whats going around you. My criticism about media was not to do with the shares alone. Let them disseminate information. But then, let there be some sanity and truth in it… Otherwise we become a confused lot.
Kiru...one more question
across the globe we see recession, so it means that no single country is earning profits. so where is all the money???
Yeah. the answer for this is a little tough. But then the primary cause would be LEVERAGE versus OPTIMISM in future (or it could also mean consumer confidence) versus the actual capability and consumption increase.
We are in a phase of recession because US as a country was over leveraged and US banks were over leveraged which boosted up the consumption artificially...
To answer your question, "no single country is earning profit" because we are just compensating for the extra bit that was enjoyed by US in the last few years, which means we(US) have already used the money(in advance) for comforts and better life style for which we will have to compensate now.
But then, I don't agree to the fact that every country will loose out on this. If this novice's understanding of Economics is correct then in the next few years you should see a power shift from developed economies(US and western countries) to the emerging economies like India and China provided no protectionism and political intervention comes in between.
If we define profit = revenue/cost. So far all the CEOs were looking primarily at the numerator. Now when they have to cut cost they are forced to look at the denominator, which means there is a possibility of more work getting outsourced. And India has got a lot of strategic advantages as far as outsourcing of work is concerned.
So, even if not in the near term (1-2 year time frame..) India stands out to gain(relatively) because of this recession..
I don't really know how many would buy in my argument... :-)
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