Monday stock mayhem spells pain, is there an easy way out?

The Indian stock markets have experienced what, in some circles, is being described as a black Monday.

The Sensex (Sensitive Index) at the Mumbai Stock Exchange closed down 1,625 points to end at 25,741, a percentage dip of around 6%. The broader Nifty (tracking 50 stocks) mirrored the trend by ending at 7,809, losing 490 points and lost around 6% again.

In both cases, it was the second largest fall in absolute terms on both the indices.

PERMANENT TURN-OFF?

For a lay investor, who has perhaps made a tentative start to his investing career, this could well be the first experience that could turn him off the equity markets permanently.

“I am only a recent investor in the market. I had bought Maruti Suzuki India shares which have today lost around Rs 326 per share at the BSE. I am worried, but at least I know that this company will regain. Some others have invested in mid-cap stocks that have simply tanked. I bargained for peace, after investing but this is mental stress,” says Sandeep Dahiya, an MBA student from University Business School at Panjab University, claiming that technically the market should have fallen only around 2%, but sentiment had pushed it deeper into the trough.

How serious is this mental tension going to be? Do people need to position themselves before their TV sets over the next few days to press the sell button as the stock they are invested in gives them even a marginal return or is back to their buying prices.

“A big no. The Indian economy’s fundamentals remain strong and there is no change in them over the past week. China’s growth bubble is bursting and this has caused global pain, of which India has been a part. That’s all there is to this fall,” says Nitin Kapur, Chandigarh-based associate vice-president, IIFL, a financial advisory company.

Kapur, in fact, claims this correction would be temporary and could yet be a chance to invest even more in the market.

‘RELATIVELY INSULATED’

“While global pain might continue, India will be relatively insulated by our adequate foreign exchange reserves ($380 bn according to the RBI roughly Rs 25.5 lakh crore) and domestic institutional investors like Life Insurance Corporation step in to invest. So, investors might actually be in a good company if they invest in the market now. Speculators or those looking for easy money should stay away, as they will do anyway. Falling crude prices are in the long run to our benefit,” Kapur says.

“Today’s fall was because of China’s weak currency and the falling crude prices. Both the Dow Jones and the Chinese index are down. The rupee is also at its weakest in two years at 66.80 (around 6 pm). In Greece, there is again instability on whether it will reform,” says Sushil Kumar, manager, Master Capital Services Ltd, a Ludhiana-based firm.

VIEW FROM THE STREET

Apart from the technicalities, some people are linking the fall to the broader ‘dysfunctional’ Indian polity as well.

“The dip in equity markets reflects the fact that Parliament has failed to legislate. Critical and important laws are been held up for ages. Controversy over land bill has eroded investor confidence. Yet, I feel this government will tide over the pressure and the market would recover. The downfall is temporary,” says Ludhiana resident Prof Arvind Malhotra.

Others claim they saw it coming.

“The downfall was waiting to happen. Our economic policies are simply not appropriate and unsustainable,” says Badish Jindal, vice-chairman, National Productivity Council.

STRATEGIES
We can list some steps to help maintain calm and tide over the losses that some of you might have suffered.

1. Stay invested
· If your original goal was to be in the market for three years and you are into your 1st year
· The logic for this is simple, this fall and the resultant blanket coverage should not change your mind.
· Quitting now might only be of use for psychological purposes that you have saved further losses. Remember, people enter equity to make gains and not save losses, so the psychology bit too might be off the mark.

2. Sell and exit based on quality of scrip you are in

· This is advisable if you had invested only to ride the tide of fabulous equity return phase over the past two years and have had your fill.

· In this case, you were or would have been only speculating and planning to exit near this point anyway as most foreign institutional investors are expected to have done.

· Remember, the quality of the scrip invested should be the key here. A-grade stocks also took a beating on Monday. If you are invested in mid-cap stocks, where the management might not be that good, then exit

· You must enter again with better appetite and risk calculation, three-four months from now.

3. Invest some more now

A counter-intuitive move for a lay investor, if ever there was one but it is seen positively by Kapur from IIFL.

“Being too negative now will be seeing only one side of the story. For a smart investor (the one who can afford to be patient with money), when will Nifty be again at 7,800? This is an opportunity for investors, not speculators. Speculators have played their game. This could be investment time for an average retail investor. If not today, then a week from now as I cannot imagine this being a permanent trough, considering India’s overall attractiveness as an emerging market,” he says.

(with inputs by Rameshinder Singh Sandhu in Ludhiana)