Hope is what drives man. If there is no hope there is no life.  But when it comes to stock market it is the greed that drives investors. Though this doesn’t apply to all investors majority of them expect to earn 100 rupees by investing 10 rupees in a short period.  Stock market has become a synonym for greed and off late has become a new bungee rope.

Even if you are cautious while investing, in an integrated world, events in one part of the word  will influence the whole world.  Few clever people turned their shares into cash as soon as the meltdown started and others are now hanging on to some worthy and some useless electronic share certificates.

This decline is not limited to stock market alone but has spread everywhere.  Be it real estate, increasing prices, inflation, liquidity crisis, decreasing jobs…  There is darkness everywhere.

Common man might be thinking that terms like economic slowdown or credit crisis will not affect him. Losses in stock market will not only affect the investors. It will affect the whole economy. If markets are down, capital raising will slow down which in turn effects production of goods and services and standard of living will stay where it is. For example:  Metro Rail project in Hyderabad is not able to raise funds in the market. Economists are predicting a depression similar to that of 1929 ‘Great America Depression’.

But the difference is, in those days economies weren’t integrated and countries weren’t dependent on each other.  But today we can’t look at any countries economy in isolation.  Nokia based in Finland sells more than 50% of it’s mobiles in India and China.  If there is a slowdown in India and China and Nokia exports decline, it will have a major impact on Finland.  Infact , in the current crisis it’s the export oriented nations that are hurt most.  In a way India is protected as most of the goods and services produced are for self consumption.  It’s only the software market which exports services to other countries that has suffered most in terms of loss of business profits and jobs.

One thing that Government, regulators should keep in mind is that we are rapidly opening our economy to outsides increasing the risk of external events affecting us. In 2002, Inida received foreign investment to the tune of 1200 crore dollars while it has gone up to 11,000 crore dollars in 2007. With so much investment coming in, share markets went up and up, real estate boomed. After that we know what happened. 

America sneezed and the rest of the world caught cold.

When markets fall FII’s are the first ones to withdraw money. In the last 2 days alone Europe based funds have sold more than 12,000 crores worth of securities due to the redemption pressures they are facing. How can you explain a decline in SBI stock price when it has announced an increase of 40% in its profits?  FIIs are selling in crores and taking back their investments.  That’s the reason for weakening rupee.  It has almost touched Rs 50 and I will not be surprised if it touches 54-55 in another 6 months.

What should be done?

Government should have foresight.  Our Prime Minister, Finance Minister, Central Bank officials are all economic experts. They should decide on how much foreign investment should be allowed and what should be the level of disclosure or transparency for the money that is coming from outside?

If they had done this earlier today Indian stock markets would not have fallen so much.  Again, I am not against foreign money coming in.  All what I am saying is that there should be a mechanism to avoid hot money that just flows out at the outset of a crisis deepening the crisis further.  I agree that growth rate will slowdown bit but  slow progress is better than a rapid progress and equally or even faster decline.

There should be growth in any economy.  But it should be gradual and not at lightning pace. If the market hasn’t grown so rapidly, common man would not have put his money in it in haste and would have avoided the current blow.

 Government should focus mainly on

1. Inducing some confidence in the system, reducing inflation and strengthing rupee.

2. Strengthing the banking system further so that it will not collapse like the other foreign banks.

3. Growth rate has slipped to 6.5 % from 8.5%. Demand is already reducing. Since private consumption won’t be much, government should spend heavily on infrastructure projects which will propel demand.

4. Should reduce government expenditure wherever possible.

While the pundits have opined that US economic slowdown will continue for another 2 months, it will be a real test for Indian regulators and Government to keep the economy on growth track.

On this occasion of holy Diwali I pray the almighty to lead us from darkness to light

Popularity: 17%

In an unexpected move, the Indian government has appointed its Finance Secretary Duvvuri Subbarao as the Governor of Reserve Bank of India. Rao will succeed YV Reddy, who is retiring on September 5. Street has it that this move has made some heart burns including that of the Deputy Governor Rakesh Mohan who was the hot favourite for the governor’s job.

Subbaro, 59, will hold office of the RBI governor for the next three years.

Reddy who became the RBI governor in July 2003, succeeding Bimal Jalan, expressed unwillingness for an extension of his term, forcing the government to look for a replacement. Chidambaram has been candid in his support towards the incumbent governor.

D Subbarao is a an alumnus of IIT Kanpur and a 1972 batch officer of the Indian Administrative Service belonging to the Andhra cadre. Subbarao was secretary to Prime Minister’s Economic Advisory Council. He has also done stints as an economist in World Bank between 1999 and 2004 in Africa and East Asia.

An alumnus of the Massachusetts Institute of Technology (MIT) where he was a Humphrey Fellow, Subbarao also holds a doctorate from Andhra University. Subbarao joined the civil services after earning Masters in Economics from the Ohio State university.

Subbarao is taking over the top job when India’s inflation is at a very high level and also when the interest rates have gone through the roof. It’s likely Subbarao will continue with the strict policy for sometime now especially since it’s an election year. 

I also think, given his credentials, this is the right move for India from a global strategy view point as Subbarao brings with him a combination of experience in high ranks.

Will definitely be worth watching what Subbarao has in store for the country.

On a different note, Andhra Pradesh seems to be on a high in the RBI agenda – First YV Reddy and now D Subbarao. Phew !!!

Popularity: 50%

Today India raised its Prime Lending Rate from 7.75% to 8% – a jump of 25 Basis Points. I have been thinking as to what could be the impact to a common man like many of us and how best can we take advantage of the situation.

Whenever I think of its impact, it scares the hell out of me.  I am not scared by a mere 25 BP increase, what I am scared is for the impact on all of us, eventually. May be it is a good move by the RBI to curb inflation and its side effects. Think about it – this could be the trigger of rising costs and reduction in the purchasing power of the common junta.

Take a look at what it has done to the already bleeding market. In the US, the Indian shares fell sending the BONY India ADR Index to a 2 month low. Every day I read about the bloodbath on the floor and it disturbs me. I know how much I have longed for playing in the market and when I did, it cheated on me like a pack of dominoes falling without even giving notice and an opportunity to recover. I wish I had listened to my outer conscience a.k.a. my wife.

Coming to the point, there is this gloom everywhere. Markets all over the world are crumbling, interest rates on the rise, real estate becoming unaffordable day by day, stock prices dipping etc etc.

What does it say  – If there is an opportunity ever, it is only now, only now, only now !!! I wish I had delayed my investment in stock market by 6 months.

You can not obviously create an omlete without breaking an egg – can you ?  Where there are growth opportunities, there ought to be some challenges as well. So sit back and enjoy the turbulent times – If you have the dough, test your analytical skills and may be practice it too.

This is the time to do it !

Popularity: 11%