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Jack and Jill went up the hill to fetch a pile of water. Jack fell down and broke his crown Jill came tumbling after. This is true for the Indian Stock market in particular and global markets in general. When US banks fell down Indian stocks came tumbling. Nobody knows when and where this will settle. 

In March, 1988 the sensex was hovering around just 390. In five years time it rose to 4492 on April ,22nd 1992 and came crashing to 2097 (26th April, 1993). Then it peaked to 5933 on 11.2.2000 and then fell down to about 2600 on 21.9.2001. From this level it took just six and half years to scale another peak of 20873!  on 8.1.08. The sensex crossed the magical 10000 mark somewhere during December, 2006 and took just 13 months to reach 20873. 

From this level sensex started sliding and today it has slipped below 10000 and closed at 9768. Thus from the peak of 20873 sensex has retraced its upward journey by nearly 11105 points in just 10 months ! There are many opinions as to where sensex will find  its bottom. This is a million doller question.  After exhausting the one third technical correction sensex has broken that expected support and is now trying to exhaust 50% correction. It may find support at around 9150 (at the time of writing this article sensex has pierced this level and has come down to 8701). If the correction extends to two thirds one may see sensex at 6091 approximately.

According to Law of Nature whatever goes up must come down and whatever comes down must go up.  Stock Market is no exception to this Rule. But the question is whether this uptrend and downtrend is natural or artificial. If it is natural nothing can be done about it. But if it is artificial who is going to take responsibility for the huge loss suffered by the investors.

There is an organisation in India which acts as the controlling authority of Stock Market. It is called Securities and Exchange Board of India(SEBI). The main object of SEBI is to protect investors interest. Have they performed their duty properly?

In India if an ordinary person wants to open a bank account he has to undergo lot of formalities in identifying himself, giving address proof and he has to be introduced by a person having account in the bank. All these troubles for just depositing Rs.500/- in a bank.

But  thousands of crores of money came to the Stock Market through  a medium called Participatory Notes(PN). Nobody knows about the real person who has invested such a huge money on Stock Market. Nobody could know who actually has purchased the shares. If  anybody in India is to purchase a share the following things are required.

(1) You should have Permanent Account Number  (2) You should register yourself with a member of a recognised Stock Exchange (3) You should have an account with a depository participant.  Eventhough a stock broker purchases share from the market on your behalf it is mandatory that you should  reveal your personal identity and give proof of address to three different authorities,  Income Tax department, Stock Exchange Member and Depository participant. Not only this the stock broker has to put your code in the order then only he has to execute it. You have to necessarily undergo this process even if you want to buy a single share for Rs.100 !

But neither SEBI nor Finance Ministry nor RBI knows the real person who is pumping money through Foreign Institutional Investor (FII). As per the present law these individual investors abroad need not reveal their identity. The investor may even be Bin Laden, Dawood Ibrahim or LTTE Supremo Prabakaran or a leader from some other terrorist organisation.  This is a classic example for  “Pennywise and Pound foolish”.  When monies, black or white, accounted and unaccounted come in large numbers we saw a situation of too much money chasing too few shares. This has resulted in runaway boom in stock markets.

Then came subprime crisis in United States. Lot of rumours started pouring into the market which made the sensex to retrace from its peak of 20873. There will not be smoke without fire. Lehman Brothers caved in and the catastrophe started all round the financial world. India is no exception for the simple reason FIIs have invested huge money in Indian Stocks. To finance their loss in US they had to necessarily sell stocks in Indian Market. Rest is history now.

For every action there is an equal and opposite reaction. True to this whatever went up for the past 6 years came down crashing in just 10 months. 

Adding fuel to the fire FIIs sold shares which they did not have. This is called short selling. They resorted to borrowing shares from other FIIs and dumped the same in Indian market. As usual SEBI is not aware of the identity of the foreign buyer and is not bothered about the foreign seller also. Such sellers were let scot free. But the poor Indians have to pay their lifetime savings and family fortunes as a price for this. Is this the objective of SEBI, protecting the interest of investors and public? I leave this to SEBI chairman.

Coming to investing,  the following question is frequently  asked everywhere .  Is this the right time to invest in stock market?

One should understand that the main characteristic of stock market is volatility. Lion is respected only when it roars and the Snake only when it hisses.  It there is no up and down movement of stocks there will not be any buyers and sellers. Then Stock market has to die a natural death.

Initially one is hesitant to buy a share.  After sometime when the stock prices go up he gets confidence and buys more. When the market accelerates higher his confidence becomes greed. At this juncture the question that is raised is will the boom last. This makes the buyers hesitant. But his greed prevents him from selling his stock. He gives alibis for the static market. When the buying stops as a natural corollary prices dip. This shakes the confidence of the investors and selling starts.  Fear takes the place of confidence and the market is flooded with sellers and the market nosedives thus completing the whole cycle.

Hence one should understand that Stock market is only stock market - not a shock market. We receive shocks only because of ignorance of the stock market cycle and because of our greed.

Once should know that Stock Market is like Lord Shiva. There is a story that inspite of their best efforts neither Lord Vishnu could find out the feet of Lord Shiva nor Lord Brahma could find out the top of the head of Lord Shiva. Both of them miserably failed in their attempt.  One will face such failure if they attempt to find out the bottom and top of stock market or of a scrip. One can operate only by buying  more or less near the bottom or sell more or less near the top.

Hence  going by the charts this decline has given an opportunity for the real investors to buy blue chips at bargain prices.  I would like to conclude this article by quoting legendry Warren Buffet

” Be greedy when others are fearful” ( I think the entire investing community is shivering with fears due to the velocity of the crash)

” If you cannot hold a share for ten years don’t hold it even for ten minutes” ( What Buffet wants to stress is that if you want to win in stock market you should be a long term investor capable of waiting like a crane for your turn to come).

Start investing from this Muhurat and reap the benefit in a couple of years. Best of luck.

 

 

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