Tuesday, March 10, 2009

Sensex at 40-month low! Opportunity provided to buy or stay away?

Sensex (8160) has slumped by more than 60% in the last 13 months and trading close to the October’08 lows at 7697. Fear has gripped the common investor as stocks give lower lows every session. Just the other day, RBI cut rates and still markets sold off. Many ask about what’s going on and why isn’t the market listening? Before going into future, here is some history:

Fall from 2000 to 2002 and then small consolidation

Sensex fell for nearly 19 months from 6150 to 2594; again moved sideways for 19-20 months. But what followed this action? Answer comes next!

Rally from 2003 to 2008

It was the greatest rally in the history of Indian stock markets. Sensex started at 2904 and gave new all time high of 6249 in just 9 months. After that too we saw 21206 in just 5 years time – 7 times returns! But then that cycle too ended.

Fall from 2008 start

Sensex hit 7697 after hitting 21206. It happened in just 10 months and both time and price-wise correction is getting over now. Rallies in the past have been V-shaped and very fast, you starve for correction, but nothing will come.

And now about future:

This is a bear market and as bull markets obey no resistance, bear markets obey no support. Many companies expanded hastily, did gigantic acquisitions and added alarming levels of debts to balance sheets through FCCBs and what not. All had happened under everybody’s nose, nobody paid heed to that. But when everybody started realizing the bad news, we were already down half-way, and now the worst is at its best. Similarly, no good news will be digested now, time is needed to understand reality, but when it is apparent, half the fun will have already been over. When it starts rising, there will be no time for buying. So time is now, nobody can predict the exact bottom, what we can do is commit money and time will itself answer all our queries.

It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price”

“Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised.” – Warren Buffet

Happy Investing!

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