Impact of AMERICAN Crisis..

Severity of American crisis

Popular theory: Indian economy will less likely be affected by American economic crisis. So our stock markets are safe heavens for investments. Is it really correct?

My opinion: As they are saying, our economy is less dependent on American economy unlike Japan (Except sectors like IT and Pharma). But our stock markets are no longer representing our economy. They are the “bubbles” created due to irrational investments by foreign and domestic institutions. So they will be definitely affected by American financial crisis. Don’t believe in “decoupling theory”. If you believe in it, you will face the similar fate of BJP in 2004 elections (India Shining campaign).

Severity of American crisis:

1. US Federal is aiding in increasing American crisis as it did in 2001 by cutting interest rates. Instead of taking long term measures, it is opting for stop gap measures like rate cut which will further aggravate crisis.

2. When a company like “Apple” after announcing superb results gave cautious growth signs. It is a clear sign of future growth problems.

3. When a company like “Google” shed 30% of its stock price (good fundamentals, growth opportunities etc.), we should understand the severity of the problem.

4. Soros: "World is facing worst ever economic crisis after world war 2". When an experienced expert gave that statement, we should understand the problem.

5. United States housing sales fell first time in 25 years and prices are declined for the first time since 1929 great American depression.

Note: Stock Markets will see ups and downs until President George Bush comes with great relief package. These are more testing times for world stock markets due to lack of confidence in investors.

My advice: Indian stock markets (BSE SENSEX) will move between 14,500-18,500 points with extreme volatility. It is difficult for ordinary investors to plan their investments in such an extreme volatile situation.

If you are a long term investor, invest in good companies which are less dependent on United States like Reliance Communications, Tata Motors, L&T, and Reliance Industries etc.

Stay away from penny stocks and overvalued stocks like RNRL, Ispat, and Essar Oil etc.

Save your money for upcoming wonderful IPOs like ATPL.

Long term investors should continue to accumulate good stocks and forget about them for 1-2 years. Speculators will bite the dust in these unpredictable times. Conservative investors should stay away from markets until “recession” fears are cleared.