Tuesday, September 30, 2008

Best Case Scenario : Global slowdown

Key Factors : Global economic landscape

  • US : already in a recession and it is likely to continue for another few quarters
  • Bailout Plan : poorly designed – at best a confidence building measure even if it gets passed later
  • US Financial system : high risk of a complete meltdown
  • Europe / Japan / China : varying degrees of slowdown – slide continues

Key Factors : Indian Landscape

  • GDP Growth : 5% or lower levels over next two years
  • Slowdown across all sectors
  • Factor price correction as the cycle progresses : salaries , land prices, interest rates will come down as the economy recalibirates
  • Dollar flow : has multiple elements; investment flows, capital flows and trade flow plus some other sub components. Each will react differently. US & Europoean Investments will definitely flow out of country. The financial systems there are starved of cash. Liquid investments like stocks will flow out first. Lower demand for dollar on capital account. Not sure of direction of trade flows.

Indian Stock Market outlook

Have already shared my assessment.
  • Over next 9-12 months, downslide will continue. 70% chance of a 12K breach.
  • If 12K breached, then another 70% chance of a sub 10K Sensex levels.
  • Slowdown of global and Indian economy remains the key driver.
  • On the upside , my estimates suggest that Sensex likely to go up to 40K (min 25K) by Sept 2013 and 80K (min 45K) by 2016

In a Nutshell

At best we are looking at a global slowdown and a severe impact to the financial systems of countries – impact varying from country to country

At worst we are looking at a Global recession accompanied with a complete meltdown of major financial systems across the globe

Either ways, the worst is far from over for India and the World ; US economy will be the worst impacted.

Monday, September 29, 2008

70% chance of a 12000 Breach.

No change in my assessment of market direction or the global / Indian economic scenario.

Here's my assessment from a couple of months back when the 15 was breached.

  • Given 15000 breach, the probability of a 12000 breach now stands at almost 70% and 10000 breach at 33%
  • No change in my outlook for India and and the globe. In a nutshell global downslide continues unabated. I believe we are still far away from a bottom. Too many factors out of sync for recovery to begin.
  • Great opportunity for the long term investors over next 12 months.

My probabilistic estimates (posted before the 15K breach) copied below for ready reference. New estimates given in paragraphs above.

My estimates suggest that Sensex likely to go up to 40K (min 25K) by Sept 2013 and 80K (min 45K) by 2016. However before it does that, it's likely to breach 15K (75% probability)– 12K (50% probability)– 10 K (25% probability)

The US bailout package, as it stands now, will have limited impact. At best it will only marginally slow down the downward slide in US financial market and the US economy. At worst, the meltdown in the US financial markets will continue unabated.