When the eminent economists at RBS yelled that investors must “sell everything” on the basis that “danger is lurking out there for every investor” and “this looks very much like 2008” we had a good laugh at them.
Similarly, when George Soros, the veteran & legendary trader, surfaced from retirement to warn us that the present crises is a “serious challenge” and “reminds of the 2008 crises”, we mocked him and wondered whether he had lost some of his marbles.
Today, there are no smiles on our faces. The Sensex plunged 807 points (3.4%) to touch 22,951 while the Nifty plunged 239 points (3.32%) to touch 6,976.
The markets are now officially in Bear market territory because on a YoY basis, they have lost 20%. This was confirmed by Sridhar Sivaram, investment director at Enam Holdings.
“This is a bear market … I don’t think this is bull market without any stretch of imagination … The asset class itself is facing a bear market … this correction was overdue because we were basically a hope trade which was continuing to the last 18 months and now the fact that even globally the headwinds are against risk appetite right now…. We haven’t seen any selling at all. So, if this happens we will see some bit of selling coming from emerging market funds who have heavily over-weighted India …” Sridhar Sivaram said with the warning that if the EM Funds decide to exit India, the selling that we have seen so far will appear to be like a picnic.
It goes without saying that a fall of 20% at the Index level means that individual stocks, especially mid-caps have lost much, much more of their value.
The worst case scenario appears to be here because even the Gurus are now buckling under the pressure.
Sandeep Sabharwal, who runs a popular stock advisory service, offered a “special discount” to new subscribers.
On the request of many
Spl discount code for WINNERS PLAN under https://t.co/zSSEbAv54G stock advisory is
Valid till 18th Feb
— sandip sabharwal (@sandipsabharwal) February 11, 2016
While Sabharwal was obviously joking, one can sense the state of mind of the market participants.
Porinju Veliyath, the eternal optimist, also appeared to be shaken by the intensity of the fall. He advised traders to take refuge in the Bhagwad Geeta even while maintaining a brave face and saying “Can’t feel bearish still; I don’t give up!”
Can't feel bearish still; I don't give up!
Some badly affected traders seek refuge in Bhagwat Gita:
Tum kya leke aaye the,
Kya lekar jaoge????
— Porinju Veliyath (@porinju) February 11, 2016
However, Porinju was clearly feeling the strain because his favourite stocks continued to get hammered. Sahyadri Industries slumped 18% while Royal Orchid tripped the lower circuit filter by plunging 10%. Arvind Infra continued its southward journey by plunging another 10%. It also tripped the lower circuit filter.
Fortunately, Porinju did not lose his sense of humour. He pulled out an old tweet where he had recommended Unitech when it was at Rs. 17 and had opined that it would surge 50% to 100%. Unfortunately, Unitech has gone the other way. Today, it plunged 16% to rest at Rs. 4, resulting in a loss of 76% since Porinju’s tweet.
Interesting old tweet: looks like Unitech had another stock-split!https://t.co/mhilve6RDC
— Porinju Veliyath (@porinju) February 11, 2016
David Stockman, an eminent businessman who has been very pessimistic about the state of the markets, warned that the present crises situation is going to deepen. “The markets are being pawed by the Bear right now but they are going to be mauled” he said in a sinister tone. “This is not just the end of a Bull market. It is the end of an era” he added. Stockman proceeded to several reasons in support of his thesis.
However, some Gurus offered a more optimistic perspective.
Manish Chokhani, the former Enam veteran, soothed investors’ nerves by reminding them the present crises is a great opportunity to buy top-quality stocks at rock bottom prices.
The unanimous advice of all the Gurus is that we must stick to high quality companies with good free cash flows, low debt etc and avoid junkyard stocks at all costs!
Basant Maheshwari encapsulated this advice by emphasizing that the three things that investors have to check are (i) earnings, (ii) EPS growth and (iii) predictability of that growth.
3 important things to check in our portfolio stocks now 1) Earnings 2) EPS Growth 3) Predictability of that growth. #TheThoughtfulInvestor
— Basant Maheshwari (@BMTheEquityDesk) February 11, 2016
Basant’s advice makes a lot of sense. If we do get stocks which are continuously increasing their earnings, there is a good chance that we will be able to pocket a tidy profit when the tide turns and the markets surge again! Now, the million dollar question is which are those stocks?