The USA House of Representatives rejected by a 205 to 228 Vote the US $ 700 Billion Rescue Package for Wall Street…The DOW JONES reacted violently in Panic to close with the Worst and Highest Points Fall of 778 and a record 7% down at 10365 while the Nasdaq Composite and the S & P 500 dived to close down by near record 9% each at 1984 and 1106 respectively
Brokerages and Financials simply collapsed further on Wall Street…some scrips by over 20% today and all by over 90% in the past Twelve Months…Wall Street Lost a record US $ 840 Billion today in Market Capitalisation
USA and it’s citizens are in a state of disbelief and panic and Americans are withdrawing Cash from Banks and some are buying into Gold
It’s a Classical George Orwell’s Catch 22 Situation in USA….you’re Doomed if you Did…you’re Doomed if you Don’t !…So even if the Bail-out Plan was passed,the credit crisis would not have gone away….Simply TINA (There is No Alternative)…but to live out the pain, the roots of which were injected into the Financial System years ago(Check out the blog today on www.gauravblog.com titled “USA has been building a House of Cards)
WATCH out For the SENSEX opening in the red in the Morning and slipping 6% atleast below 12000.It has already opened the week on Monday down 506 Points at 12596
As we conveyed to you last week…Look for Vulture Investments and Scavenger and Distress Prices as Buying Opportunities
We reproduce relevant extracts below from our SCRIPTECH SCRAMBLE of June 20,2008…The scenario is playing out to just as we had figured…and within the timeframe too
The Financial Earthquake, with the Epi Centre in USA, continues to create after shock tremors with leading Finance Powerhouses like Bear Stearns needing a bailout and Citicorp seeking continuous Funding….the FED is in a crazy unreal position of having to cut rates to fund sub prime loss and provide liquidity despite rising Inflation……yet we follow reports and noises being generated from such powerhouses for their India Perspective when their own house is not in order!
Corporate Earnings that were growing smartly year on year will show rate decelerations,especially companies who lack pricing power and are unable to pass on rising input costs to the customers…the lower earnings growth rates and in many cases even lower profits in absolute terms would in turn mean lower stock prices as earnings and cash flows form the basis for valuation
Sensex Earnings,which form the basis for a macro valuation,will be impacted and move towards 12% to 15% from 20% +
The Lower Sensex Earnings and the fact that the re-rating story is now being derated will mean lower multiples…may revert back to 2001 lows of 9….It’s 14571 today…clearly not yet attractive enough…..Really wish for a 2001 like scenario of 9 and 10 multiple…that would mean a move downwards to below 12000…that’s likely before October
There’s clearly some more pain before the recovery….It’s not really a tempting entry level yet even at these 14500 levels.
It would be advisable to sit on existing Investible Surplus for some more time yet…Don’t be in any hurry to Invest
Look at it this way…you may have missed the last brilliant Five Year Investor Plan 2002-2007…but you’ll get to enter in yet another Five Year Plan 2008-2013 later this year after which you can retire rich and appear with some depth as a financial guru on media channels !…just stay true to your Risk Profile and you will recover loss or even loss of gains over the coming years…but you may yet have to bear out situations where your equity portfolio may decline further before it recovers
In keeping with the gaining Popularity of the T20 format in Cricket we too have created a basket of 20 scrips that we like…in fact getting to love as they fall further…we have not released them as yet as we want them to fall in an entry range that would beg for investment….Oh Yes! IFCI is one of these 20 scrips…we’re always looking for that margin of safety of True Value being much higher than the Share Price….of course we’re aware that scrips will fall even lower than what their Valuations indicate as Market Sentiment and Herd mentality rides the roost in Bearish times like these…..Even If you’re a sworn believer that only Insider Trading , and not Research,works…let me assure you that in Depressing Times it’s the Reverse !