Shankar Sharma kept it simple and straight but also menacing:
“Emerging markets are going to be down. I am 100% sure they are going to be down from wherever they are right now. This includes India. So, absolutely no doubt in my mind that India will be sharply lower in May and of course emerging markets will be at least 10% to 20% lower from where they are right now”.
Now, if you sit down and think about it quietly, you will see that there is a good chance for a decent correction in the stock markets.
Firstly, the earnings season is almost over and there are no new triggers in place.
Secondly, the fears of a hung Parliament in the wake of the elections will sooner or later grip investors. AAP has disrupted the scenario and the feeling that the BJP and Narendra Modi will get an absolute majority does not seem so certain now.
Thirdly, the so-called QE of the FED has a bad habit of rearing its ugly head when you least expect it and of becoming a periodical nuisance.
Some other reasons are the low IIP numbers, the high inflation, the impending interest rate hikes, China’s slowing growth etc. The fact that the market has rallied so much so fast from the last correction is also a factor. In fact, the ET has compiled Five reasons why Sensex looks headed for a big fall.
Anyway, what I can say from experience is that the worst thing about a correction is not the correction itself but the fact that we are unable to take advantage of the steep fall in the stock prices.
Speaking for myself, when the markets had a steep correction in August-September 2013, I was like a deer caught in the headlights. By the time I gathered my wits and resolved to buy, it was too late because the stock prices recovered swiftly.
So, this time I am better prepared. First, I have jettisoned most of the junkyard stocks and realized whatever cash I could get. Second, I have a check-list of my favourite stocks. These are top-quality & dominant powerhouse stocks, with a proven track-record of success. Third, I will closely monitor the situation. On an ugly day, when the market crumples, I am going to systematically discharge my gunpowder and scoop up my favourite stocks. This way, when the bullish trend resumes, my armoury will be well stocked.
If you adopt this strategy, then Shankar Sharma’s prophecies no longer frighten you. Instead, you are eager that it comes true so that you can take advantage of it.