Subprime Crisis - An Indian Perspective- Part II

Last week, our stock market suffered one of its worst ever weekly losses.

Investors/traders’ confidence is in shambles now.

Is it a Beginning of an End or End of a Beginning?

Main reasons for such a drastic fall are as under.

Ø Collapse of American Investment Banks.
Ø Delay in passing the “Rescue Bill” by the American Congress.
Ø Sell-off by US Investment Banks in Indian markets.
Ø Nuked Banks coming in the way of approval of Nuclear Deal by the American Congress.

Now, we are in a “Make or Break” situation.

Sensex is very close to its crucial lifeline of 12500 points and it is quite likely that the levels may be tested once again.

Now, the important question is, whether the support line will hold for the third time (in the recent past). Any fall below this line may take the Sensex even to four digit numbers.

Immediate outlook for our market is grim and there are unanswered questions how many more US banks are going to fail in the immediate future and how much more money is going to move out of India. Effectiveness of the rescue measures is also doubtful.

Traders are requested to monitor the market closely and initiate action only, in case, the said support line is firmly held or a positive trigger from US (Both on rescue bill and nuclear deal)

Cements, Infrastructure, Capital Goods and Power stocks will be in demand, in case of approval of Nuclear Bill.

Dalal Street is now looking at Wall Street (which is already in shambles) for further direction.

At the same time, we should remember one thing.

We should not confuse between the impact of collapse of US Investment Banks on our markets and the same on our economy.

Indian economy is not much dependent on USA like our stock market.

Our economic growth is more consumption oriented than being an export (particularly to US) oriented. In fact, fall in US demands will help us in containing our import bill as the prices of crude and other basic goods will come down.

Indian growth is more visible now than ever.

Friends are hereby requested to look at our countryside for the visibility of growth rather than looking only at cities like Mumbai and Bangalore.

Indians are now importing Audi like cars whereas western countries are getting ready to import Maruti (Alto New version) cars from India. This fact should give a lot of confidence upon ourselves.

Changing demography in India has resulted in more Indians thinking how to grow or how to make money. Traditional way of content-life style is not there now.


India will continue to grow, even though, the growth rate may slow down by some extent.

Still, India will be the one among very few countries to have growth in times of a global slow down.

At the same, major threats for our economy will be

Rising Inflation
High Interest Rates
Terrorism
Infrastructure Bottlenecks
Energy Shortage

Solving of these problems should be a priority for us rather than looking at American problems.


I am of the personal view that Investors may now look for picking some stocks of high quality companies , which can withstand the (likely to be) turbulent times in the (for at least) next two years.

There is a saying. “When tide recedes, one can see who is nude and who is not.”

I would also like to suggest investors to pick such high quality stocks, over a period of time and not at one time, to minimize the price risk.

Even though, gold prices may go up in the short run because of the uncertainty/negative trends in equity markets, gold is not considered as a very long-term investment call. Once US economy, rebounds gold may loss its shine.

However, a portion of investment portfolio can be allocated to Gold investments to moderate the portfolio risk.


Rupee faces strong resistance at 47 levels and there have been RBI interventions in the market in support of Rupee. As I already mentioned, Government may not be comfortable above 47 levels and there may be relaxation of ECB/FCCB/FCNR Deposits rules to bring in more dollars. Or, there may be relaxation in exports norms or tighening of import norms.

I would like to conclude that while investing in India, one has to concentrate on its own economic issues rather than looking at others. Let us concentrate on our Indian Companies where our hard earned money is going to be invested.

Let us stop worrying for others as we have our own tasks.



Wish you happy investment times.