Stock Market outlook
- No change in my assessment. Given a 12K breach, there is now more than 70% chance of a 10K breach
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
- Begin Accumulation. If you have Rs. 100 in free cash, invest Rs 50 right away. Remaining Rs. 50 post 10K breach. Monthly savings – hold off half for 10K breach and use the remaining for regular accumulation.
Existing holdings – Hold on to existing investments, unless you need cash urgently. Be ready for a long haul.
Be ready for a seven years kind of time span.
Key Drivers : Global Economy
- US in recession : the question now is not if so, but, how bad will it be and will the country go into a depression.
Credit markets : in US and Europe have absolutely frozen out. Nobody is ready to lend to anybody. There is a deeps sense of mistrust. Banks, corporates and even government bodies are looking at severe cash crunch. If the liquidity situation does not improve in next month or so, US risks a complete economic shutdown, similar to the great depression of 1929.
US financial markets: At best there will be complete restructuring and at worst a complete meltdown. More big names will go down under
Europe / Japan : Europe and Japan already in recession like states. Japan Q2 GDP contracted 0.6% QoQ. Europe growth estimates for 2008 at 1.7% and falling.
China – in slowdown mode, similar to India.
Global impact of US and Eurozone meltdown/ recession : Economies across the globe would be impacted significantly though by differing degrees. Global slowdown certain, global recession likely.
Key Drivers : Indian Economy
- GDP Growth : 5% or lower levels over next two years
Slowdown across all sectors. As is the case in all downturns , the hardest hit would be the cyclical and commodities sector.
IT/ BPO : Margins coming down. Outsourcing will become more difficult as US/ Eurpoe jobless claims mount.
Steel / Cement / Mining/ Refining /Commodities: Will be worst hit as the price cycle takes a downturn.
Banking : Will be badly hit. Credit offtake falling , margins getting squeezed and defaults rising.
Telecom / Pharma / Consumer goods : Not so badly hit. Though growth rates will come down with varying degrees.
Capital goods : Badly hit. Corporate will hold off capital goods investments.
Infrastructure : Growth will slowdown. Government will be short of cash to fund projects till the economy goes on a recovery path.
Auto / 2 Wheeler : 4 Wheeler will be badly impacted. 2 Wheelers less so.
Labor prices : Salaries, bonuses and increments would be adversely impacted.
Labor market : Layoffs will start in H1-09.
Land prices : Prices will come down. Distress sales likely by developers as even the big ones will run out of cash in 18 months. Some will go bankrupt.
Interest Rates : Will start coming down. In a couple of years we'll again see housing interest rates at 6% levels.