I could write reams on this crisis, what precipitated it, how gloomy things could get from here… but that is a futile exercise. Memories of May 2006 resurface, leading to fears of how long mid-caps may take to recover from this blow and how bad global events could get even from here on. These are all very real fears. Yet in every crisis there is opportunity. You could wallow in the market’s current misery or choose to adopt a more constructive approach.
For the first time in many months, value has emerged, at least in pockets. Not just for stocks, even the Sensex at around 17,000 trades only at 16 times 2008-09 earnings, not including the embedded value that lies in many large-caps. This for a market that should still deliver 18-20 per cent growth, a US recession notwithstanding. That is not terribly expensive. So, am I saying we have hit the bottom? Absolutely not. Could we go down to 16,000? Surely we can. But if we do, be sure you will not be buying then as the panic level would have multiplied manifold and the phrase "bear market" would be floating around everywhere. Somewhere between here and 16,000, if we do get there, is a decent buying zone.
Having said that, more drama may yet be waiting to unfold. Maybe we will bounce from here and then plunge again, but all that is too difficult to predict and even more difficult to trade. Every fall has a lesson though: empty stories can run till a point but finally the market will whip the froth off. It is best to learn from this fall and move on, perhaps even use the next few difficult weeks to construct a high quality portfolio that is based on hard cash and earnings, shorn of hype and dreams. These may be tough days but it may well turn out to be the best buying opportunity of 2008. Do not panic, accumulate slowly, there is still a long bull market ahead of us. Maybe not in the US but in India for sure.