| Happy days are certainly not here again. In fact, the | | | | winds. |
| days to come and the days that have gone by were | | | | Mr. Vishwanathan is right, no one can afford to throw |
| never anticipated by the market men in last three- | | | | caution to the winds and hence the most question |
| four years. The rising oil has played the spoilsport, | | | | that is being faced by the investors in the recent |
| which has resulted in India's rate of inflation based on | | | | times of turmoil is what to do? Where to invest, |
| whole sale price index (WPI) shooting up into double | | | | when the markets world over are falling and other |
| digit and settling at 11.05% for the week ended June | | | | commodities like Gold and Silver are getting out of |
| 20th. this has resulted in 30-shares Sensex of the | | | | their reach and have been equally volatile. It's not |
| Bombay Stock Exchange (BSE) tumbling down to six | | | | that only Western markets are in doldrums. Their |
| month's low of 14,571 and broader 50-share S&P | | | | Indian counterparts have also shown similar amount |
| CNX Nifty of the National Stock Exchange (NSE) | | | | of choppiness, confusing the domestic investors |
| settling at 4,347 as on Friday June 20, 2008. | | | | more. Led by the US markets, due to its sub-prime |
| Now the Questions asked is that how long this | | | | related liquidity crisis, all the markets inculding the |
| situation will continue? The Simple answer is for the | | | | emerging markets have taken a severe beating in |
| rest of the financial year 2009 (FY09). The shooting | | | | last three months. |
| up of the inflation rate will bring in the Reserve Bank | | | | In case of India, the 30-share benchmark Sensex of |
| of India (RBI) into the picture. To reign in the rate of | | | | the Bombay Stock Exchange (BSE) and the broader |
| inflation, the central bank will try to use all the tools | | | | 50-shares S&P CNX Nifty of the National Stock |
| available as its disposal including hike in repo rate, hike | | | | Exchange (NSE) have remained most volatile in |
| in the cash reserve ratio and other measures | | | | August as well as in September. Both the Sensex and |
| periodically. Already the exercise of painting gloomy | | | | the Nifty saw volatility of 11.26% and 10.66% in the |
| picture about the market has begun. Most of the | | | | month of August, which almost doubled to 20.21% |
| research outfits have begun to come closed to the | | | | and 19.96% respectively in September. |
| reality. | | | | The developments in the US markets at the end of |
| HDFC Securities in a note to its clients said, Indian | | | | the second week-end of september- the fall of |
| inflation has shot into double digits to a 13-year, as | | | | Lehman Brothers, Bank of America taking over the |
| higher fuel prices fed into the date, driving bond | | | | embattled Merrill Lynch and the bail out of world's |
| yields up and stocks down on expectations of more | | | | financial gain American Investment Group (AIG) by |
| action from the RBI. Annual wholesale price inflation, | | | | the US government (it provided $85 billion) - bought |
| India's most widely watched measure, rose 11.05% in | | | | in open the weakness of the US economy. |
| the 12 month to June 7; it's highest since May 1995. | | | | It's not all over, two more leading US investment |
| Inflation near double digits is the last thing any | | | | banks, Morgan Stanley and the Goldman Sachs, are |
| Government would like to see in the run-up to the | | | | also believed to be in line and more bail out by the |
| elections. The fact that this came much above the | | | | US government is expected. This means that the |
| expected 9.82% shocked the street. India joined a | | | | crises is far from over and we may see the |
| growing number of Asian countries no longer able to | | | | continuity of the volatility at the stock markets in the |
| afford big subsidies in the face of rising prices. China | | | | days to come. A report released by the Standard |
| followed suit on Thursday with an 18 percent | | | | & Poor's (S&P), world's leading rating |
| increase in petrol and diesel prices. This scenario is not | | | | agency on how the world's markets have performed |
| unique to India. Eurozone's inflation is at a 16 year | | | | in august is a worth look at. It says, year till date |
| high. Australia's at a 17 year high and Pakistan's at a | | | | investors world over in the stock markets have lost |
| 30 year high. Unlike most countries, India calculates | | | | more than $6.4 trillion (more than six times the Indian |
| inflation on the wholesale price of a basket of 435 | | | | GDP.) |
| commodities which means actual prices paid by the | | | | The report released in the first week of September |
| consumer are much higher. | | | | says the world's developed and emerging equity |
| More monetary tightening is now likely in a bid to | | | | markets both lost ground in August, and have now |
| calm inflationary expectations. Repo rate and / or | | | | produced double digit, negative returns over the past |
| CRR hike are some options available to the RBI at or | | | | three-months. According to Standard & Poor's |
| ahead of its next schedule policy review is on July 29. | | | | monthly stock market review, The World by |
| At 1:12 PM on June20, the 10-year benchmark bond | | | | Numbers, developed equity market review, The |
| yield was at 8.64 %, it's highest since November | | | | World by Numbers, developed equity markets lost |
| 2001 and 17 basis points above Thursday's close of | | | | 1.56% in August and have fallen 11.55% over the |
| 8.47 percent. | | | | past three months. The world's emerging equity |
| Rising inflation could: | | | | markets have fared even worse, falling 7.09% in |
| Lead to an increase in interest rates in the system | | | | August and 19.40% over the past three months |
| based on expectation of monetary tightening by the | | | | "Global equity markets continued their dramatic |
| RBI. | | | | decline that began in mid May, decreasing investor |
| Impact demand for a host of industries - prominent | | | | networth in August by $0.8 trillion," says Howard |
| being Auto, Consumer Durables, Realty | | | | Silverblatt, Senior Index Analyst at Standard & |
| Make nominal interest rates more attractive/certain | | | | Poor's and author of the report. "Year-to-date |
| for a host of investors as compared to the uncertain | | | | through August, investor net worth has declined by |
| equity markets | | | | $6.4 trillion." |
| Lead to uncertainty in valuation of Banking and | | | | Emerging markets posted their fourth monthly loss in |
| Financial space | | | | a row (six out of eight for 2008) declining 7.09% in |
| Raise the risk premium demanded by investors in | | | | August. The three-month toll is now-19.40%, with the |
| equities | | | | 12-month period now posting a -7.27% decline. Only |
| Bring pressure on the Rupee, especially if the FIIs | | | | the Philippines (+1.68%) and thailand (+0.90%) |
| start withdrawing in a big way, This could create a | | | | managed to produce positive gains in August. |
| cycle of lower Rupee and lower Stock prices | | | | Pakistan declined 20.57%) as political unrest |
| Lead to a downgrade in earnings in most industries | | | | continued, while Russia declined 15.23%). Developed |
| Lead to panicky pro-people, anti-business action by | | | | equity markets (-1.56%) did not fare much better in |
| the Govt, that would not be welcomed by the | | | | August as only the United States (+1.54%) and the |
| market participants What can prevent any or all of | | | | Netherlands (+0.85%) produced positive returns |
| these from happening? | | | | during the month. |
| A sharp fall in oil prices, that stay lower for a few | | | | Six of the ten GICS sectors declined in August as |
| weeks | | | | Materials posted a 6.99% return. consumer |
| Cooling down of food inflation in India due to a | | | | Discretionary in the U.S rebounded to produce a |
| bountiful monsoon | | | | return of 1.89%, but the ex/U.S. component of the |
| Global sentiments towards equities and emerging | | | | group was off 1.99% for the month. Growth and |
| equities stabilising | | | | Value were both down in August, but performance |
| Calling of an early general elections in India. | | | | was split by region. Growth's overall 1.60% decline |
| Consider the following two letters to the Editor, | | | | during the month was the result of a 6.63% drop in |
| recently written by the readers of The Hindu. The | | | | the Asian Pacific market and a l.46% gain in the |
| subject matter of the letter is Market Mayhem, | | | | North American region. Value saw similar results, |
| which we have been witnessing in our markets since | | | | declining 1.50% during the month with Asia Pacific |
| last couple of months. | | | | down 4.46% and North America up 0.92%. "U.S. |
| The mayhem on the stock exchanges over the past | | | | decoupling, which was generally accepted late last |
| few trading sessions was expected. The inevitalbe | | | | year/early this year, has now been reversed with |
| has occurred, whether due to the liquidity problem or | | | | pundits again speaking about size, leadership, and the |
| the proposed circular on capital gains. The markets | | | | American economy's ability to ride out the storm," |
| had grown steadily over a year or two bringing cheet | | | | concludes Silverblatt. Though the ability of the US and |
| to all. Concomitant to the rise of the Sensex, the | | | | other developed economies cannot be doubted as |
| bullion prices soared and there was an appreciable | | | | within a day of crises, all the major central banks |
| weakening of the rupee against the dollar. However, | | | | including US Fed, Bank of England and the Bank of |
| the fall in stock prices is only accompanied by a | | | | Japan injected $247 billion to ease the liquidty |
| marginal reduction in bullion prices while the dollar still | | | | conditions i their respective economy point of view |
| rules high. The small investor needs to be prudent | | | | but if we see it from the India's point of view, the |
| while investing in stocks. | | | | amount injected is almost equivalent to the total |
| K.D.Viswanathan from Coimbatore opined that, This | | | | foreign exchange reserve of the country. |
| refers to the two editorals, aimed at creating | | | | The bail out and subsequent injection of liquidity had |
| awareness among unwary investors about the risks | | | | its desired impact on the bleeding stock markets |
| involved in share market and mutual fund | | | | across the globe including the India, where the Indian |
| investments. The small and medium investors, in | | | | finance minister stepped in to dissuade investors |
| general, appear to be a misguided lot. They ignore | | | | fears and declared Indian systems completely insulted |
| the basic principle of "BUY", when the prices dip and | | | | from the global crisis and the Indian banking sector is |
| "SELL", when the prices go up." Market corrections | | | | least affected by the global turmoil.. The Sensex and |
| are inevitable but they affect many when they are | | | | the Nifty posted its one of the biggest intra-day |
| severe. None can afford to throw caution to the | | | | gains on Friday September 19,2008. |