Today, we are getting many Queries and E-Mail regarding the mayhem on D-Street. Most of the people are asking are we in structural bear market or still in Bull market? Should I buy? Should I exit all stocks and buy when 4800-4500 comes?? And many more…
1st of All, Why market is correcting so sharply? Let me throw some light on Crude Oil the black commodity.
Crude Oil – Currently, Nymex crude is trading above $100 / barrel and Brent crude, the benchmark for Europe, is now trading at over $116 a barrel. The spike took place due to instability in Middle-east. This sharp jump in oil price will affect in negative way and will create lots of worries about sustainability of recovery in the US and Europe. Emerging nations will also face the music specially China and India. Russia & Brazil will have less impact due to High Oil Prices. India imports 80% of Oil needs. So, it’s inevitable that this rise will not make things worse. Current Account Deficit will have negative effect too. Few brokerages houses like Nomura predicted Crude to go as high as 220 $/barrel in couple of years. Possible? Yes. But no one can predict this, as it depends on number of factors. Obviously, If Crude moves upward, it will affect most of the economy including India. Oil price reached a historic high of $147.30 in July, 2008 amidst global economic recession. But Crude price also came below 50 $ in March, 2009. Hence, One can’t say with conviction that Crude will go to 125-150 $ from here and not 75-50 $ in months to come. Prices of Crude Moves more on Speculation and Geo-political concern. Today, Saudi Arabia, UAE, Kuwait, Qatar, Algeria, Libya, Iran, F.S.U., etc. and Few South American countries like Venezuela, Mexico, Colombia, Argentina, etc. and Few European countries like Denmark, Norway, U.K., etc. are top exporters of Crude. Although, most of the Middle-east countries looks stable atleast what is visible. There are concerns in Libya and Algeria which has increased the suspect on other middle-east countries. Normally, one concern creates another concern which makes spike in Crude Oil. Afterall crude is one of biggest speculation. In Next few years, Crude Oil could pass 150-200 $ / Barrel due to various reasons. Of course, another Speculation. Time has come for most of the importers and consuming nations to work on alternative energy sources. I am sure, there will be some alternative of Crude in future afterall “Necessity is the mother of invention”
Other Concerns : There is also concern on Earnings, Inflation, Rising Interest Rate, Corporate Governance, and Fiscal Deficit. Most of these concerns are real but not permanent. Also, mostly these concerns are discounted and already in price around Nifty Sub 5,200 and Sensex 17,300 level. Thursday Correction was due to Rising Crude Oil. So, market won’t correct more ? It Could, if New Concern will come in picture or Crude Oil will keep rising or any new fresh geo-political issue or below expected budget (although there is no expectation from Union budget). FIIs are selling continuously for last 2 months in cash segment. One should remember, They Buy & Sell as per market trend and their allocation in emerging nations. They were also Buying when Sensex was @ 20,000 in 2007 & Selling @ 10,000 in 2008 again They were Buying @ 20,000 in Nov,2010 and Now Selling @ 17,500 in Feb,2011. They Might Buy Again @ 22,000 also. One should not read too much in these short term trend. They mostly churn their 20% portfolio only as per market and stock specfic which reflects in short term not in long term.
Stock Market: Many of the Crash and big Corrections in the stock market over the past 30 years have been related to Oil. So, Is this another such fall or already happened? First of All, I don’t agree with the facts of bear market just because of earning estimate reduced from 22% to 15%-17% or some geo-political and black commodity reasons. Bear market starts when No reason is visible for Crash. Today, everyone aware of all reasons. Also, In Bear market, people lose maximum money by buying Stocks or Buying Oversold F&O. But Data suggests, People are not buying aggressively in F&O, Indeed people are not buying enough if we consider Short positions in System. In 2009-2010 Bull Run, most of the people were left out and they didn’t come back aggressively @ 6,000 and I doubt whether they will even come @ 5,000 or 4,500. Most of the analysts and retail/hni investors are cautious now which makes difficult to say we are in long term bear market. Most of Mid/Small Caps are down by 40%-60% due to Corporate Governance, Lack of Buyer and Delivery based selling by FIIS which indicates bear market of course atleast technically in that category. If you bought Wrong Stock then EXIT. If you bought Right Stock then HOLD. If not bought, then BUY if you are convinced with Value Buying in Staggered manner. Afterall, Big Gain is made when Pain is maximum atleast History says so. Market is uncertain in short term. But Long term outlook remains bullish. Hence, one should BUY in Systematic way to create wealth in long run. Afterall, Wealth is created in Uncertainty not when everything looks good ;- )
REGARDS,
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