Tuesday, October 21, 2008

Not the bottom - but trough of a cycle - and a time to invest

This is not the bottom, but is the trough part of a cycle and the right time for an investor to get back to market.

What will happen next

  • Below 10K, all levels would be driven purely by fear.

  • There is now a 60% chance of a 8K breach. The bottom will be when there is utter hopelessness. There is still hope in the markets and this is not the bottom

  • For the Indian economy and corporates, Q2 to Q3 '09 will be the worst - likely that some big names will cease to exist and many more will go into losses

  • From now on till Sep '09, Sensex is likely to range anywhere from 8K to 15K on the upper side.

  • For the next one year, Sensex will be extremely volatile. It will reach a new bottom - will touch those bottoms more than once - and will have many false rallies

  • Sustained bull run is likely to start only by beginning of 2010 - will be very slow at first and then start picking up speed.

  • For the long term investor (with a 7 years type of holding window) this is the time to go all out. And the long term investor should not fear even if his/ her value of investment go down by 50% over next year or so.

  • For the more active trader/ investor levels upto 15K Sensex will offer great short term trading / investment opportunities

  • On the upside , my estimates remain same as earlier for Sensex : likely to go up to 40K (min 25K) by Sept 2013 and 80K (min 45K) by 2016

Drivers for the bull run

  • The bull run in India will not pick up speed till the US housing markets have run their course - either there will be trillions of dollars of foreclosures or the US government has to write down those amounts - the third options would be pure horror and a repeat of a Japanese style 10 year slowdown

  • Around the same time that the US housing markets have run their course, I expect the European and Japanese economies to start stabilizing

  • India / China would start coming up as new consumption centers - however in the near term, India GDP likely to come down to 5% levels before it starts rising

  • I expect that a couple of years from now, major global economies will start going into their next up cycle – nearly all of them almost at the same time - that's when the bull run will start accelerating - I also expect the up cycle to peak around 2016

  • US will continue to remain the world super power -however India /China / Brazil / Russia and Europe will start coming up as new power centers

  • And then, it will be time again for the next down cycle in the world economies