Stock Market Crash Due To A Recession?

#1
Hi Alchemist,

I really wonder when this is goin to happen.

I have read a couple of articles on the net one from Stephen Roach and other from Warren Buffet.

Both have hinted a very strong possibility of a US recession and the effects of it spreading to Asia. They are also hinting a bottom out of financial markets around the globe.

I just get a feeling that market are beginning to shake and we might see a strong downfall.

The US economy I guess is at a point of no return from recession, so we must get ready to save our money till we see that " Fortune Bottom " where we can get in.

Regards,
Manik2012
 

Alchemist

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Staff member
#2
I do not expect any crash due to a recession.

I actually expect a recession to come in a phased manner.

What we may be witnessing is a gradual shift in economic activity from the western world to the Asian economies.

This is a result of globalization and it impacts may be spread over many many years.

Globalization will help in equitable distribution of wealth.

For an economy to prosper, it either has to produce goods that other economies buy or has to have a big enough local market to absorb all its produce.

What is happening now is that the western economies have become dependent on services and goods imported from the Asian countries.

As products and services are imported, their workers are losing jobs. At the same time they are not producing enough goods/services that Asian countries would buy to balance the trade.

As the workers lose jobs, the consumer markets of these economies will start to slow down.

As the economies slow down, investments will move out and go to places where better returns are expected.

As investments move out and asset prices fall, the currencies of these economies will start losing value.

This is going to be a long process. It will be more like a decay and not a bubble-burst.
 
#3
A phased crash adds to woes

A gradual downfall yes...

That is more painful than a crash because it affects delivery based trade in short not good for people looking at better returns in a two-three year period. So what that means is that markets will lose some portion of retail investors.
 
#4
Oil Woes!!

The crude oil prices are shooting through the roof. Experts predicting that oil wont cross 98$ mark have been proved wrong in 3 months. As the winter sets in further, Oil prices may increase further, albeit temporarily.
The US's motive behind iraq war and the threatening of Iran may be the result of it trying to protect its long term strategic interests.
In such a scenario, the Left has proved to be a real big "Headless Chicken", as Mr Ronan Sen remarked. The nuclear deal would have definitely helped India.
In such a situation, do we expect a downsizing of Indices??
 

Alchemist

Administrator
Staff member
#5
The crude oil prices are shooting through the roof. Experts predicting that oil wont cross 98$ mark have been proved wrong in 3 months. As the winter sets in further, Oil prices may increase further, albeit temporarily.
The US's motive behind iraq war and the threatening of Iran may be the result of it trying to protect its long term strategic interests.
In such a scenario, the Left has proved to be a real big "Headless Chicken", as Mr Ronan Sen remarked. The nuclear deal would have definitely helped India.
In such a situation, do we expect a downsizing of Indices??
I don't see much downside. My worst case guess is 16000 on the Sensex.

If US economy slows down, then money will flow out of the economy and it has to go somewhere. India is fast becoming the preferred investment destination for foreign money.

Also the rising crude prices are making the Arab countries richer. They have started investing in India too. Just yesterday there was a discussion about petrodollars being invested in India.

If western economies slow down or go into recession, then India will get affected. However, it is unlikely that the earnings growth for Indian companies will completely stop.

Making money in case of a slowed earnings growth will be little difficult than it is now, but will not be impossible.
 
#6
Any updates?

Hi Alchemist,

I guess the happenings suggest that we may see more downsizing of the indices.

Currently the stocks are trading way above its value is wat I guess.

As you have given a detailed explanation on WIPRO.

I feel that market has risen to levels that one must see only in the future so I guess it has nowhere to go but down from here to a point where valuations are justified.

What is ur view on the same?

Regards,
Manik2012
 
#7
there is a story saying a serious correction......

http://www.moneycontrol.com/mccode/news/article/news_article.php?autono=314998

In case a "proper recession' sets in....then can we trust some infrastructure companies doing good.....

because funding of these infrastructure companies come from government (and not domestic consumption) and government has sufficient cash reserve to finance and not play default.....or will governmnet do subsidy stuff and keep valuations down.

just making a wild guess...me a new investor....and finding bank FDs more profitable than sensex stocks (just calculated PE vs. interest rates.....any PE above 12.5 is expensive against FD of 8%.....infaltion and taxes unaccounted)

thnx.
 
#8
New Life to this Post?

Hi All,

I was a bit early in my post regarding the crash.

I don't know if this is a phased crash as commented by alchemist, but a fall nevertheless.

I hope even now the valuations are not attractive so lets wait to see what levels market plunges to...

Would like to welcome views from all esp Alchemist and Rajiv.

Regards,
Manik2012
 

Alchemist

Administrator
Staff member
#9
Hi All,

I was a bit early in my post regarding the crash.

I don't know if this is a phased crash as commented by alchemist, but a fall nevertheless.

I hope even now the valuations are not attractive so lets wait to see what levels market plunges to...

Would like to welcome views from all esp Alchemist and Rajiv.

Regards,
Manik2012
We can blame the crash on anything we want to:

US Recession.
Margin Calls.
Reliance Power IPO.
Planetary Positions.....:rolleyes:.

However, the truth is, recessionary fears were just the trigger. The prime reason for the crash were the valuations.

Since last few weeks, people had thrown caution to the winds and were buying stocks just because they were going up.

This is a typical sign that precedes a stock market crash.

If US recession was the prime reason for the crash, why has the US market just lost 1% in two days and we have lost 14%?

(US market was closed yesterday and is down 1% right now).
 
#10
If US recession was the prime reason for the crash, why has the US market just lost 1% in two days and we have lost 14%?

(US market was closed yesterday and is down 1% right now).
I dont know the exact answer to your question above but all I observed was US dint go to 20k levels as we did and both India and US were around 12k at same period of time when I remember people quoting that we overtook DOW...

I feel faster u go up, u fall more faster than that.

Alchemist thanks for your info.

Regards,
Manik2012
 

Alchemist

Administrator
Staff member
#11
I feel faster u go up, u fall more faster than that.
Exactly.

That is what I am saying.

We have not crashed because India is going into a recession.

We have crashed because Indian stocks were over-valued....and so were other Asian stocks.

=============================================

We will not be affected much by a US recession.

We will continue to grow.

We will lose some growth, because of lower US demand for our products/services.

At the same time, we will benefit because of lower oil prices, lower commodity prices and opportunity to reduce interest rates.

Out GDP growth rate will slow down by 1%-2%, but that is it.
 
#12
While the Indian GDP growth rate may be somewhat insulated from a US recession, the equity markets have a greater correlation with whats happening in the external world.

FIIs are owners of ~20-25% of the Indian stock market. If risk aversion in these entities grows, we will see days of great volatility ahead. Particularly so because the domestic retail investor is not sophisticated enough, and is a purely momentum player.

Lastly, most of the Indian companies' valuations are already taking into account the earnings of next 2-3-4 years. While this is OK in a bull market, its not OK in days of uncertainty. Many of the companies (DLF comes to mind) are dependent on raising capital from external sources for their operations. How successful they will be in this venture remains to be seen.
 
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#13
We will not be affected much by a US recession.

We will continue to grow.

We will lose some growth, because of lower US demand for our products/services.

At the same time, we will benefit because of lower oil prices, lower commodity prices and opportunity to reduce interest rates.

Out GDP growth rate will slow down by 1%-2%, but that is it.
I Agree. Most of the US recession will have and is already having an effect on the IT and exports industry.

God knows what effect it will have on the jobs in IT sector (people like me will hope it to not have much impact) :(

apart from this, Indian growth story seems to be intact and as Alchemist has said time and again, with US recession, the money flowing out will have to go somewhere and India will welcome that with open arms.
 
#14
Reason for Global sell off?

Hi All,

Now that we have seen a sizable cut in stock markets worldwide I am wondering where the money is going into?

Availability of credit has nearly crumbled and where is all the money going that comes from these stock mkt sell-off?

I read an article that real estate will get affected as companies that fund the real estate companies will face credit problems.

PS: update us with more info

Regards,
Manik2012
 
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Alchemist

Administrator
Staff member
#15
I don't see much downside. My worst case guess is 16000 on the Sensex.
Feels so stupid now....:D.

I was never bullish on the US economy after mid-2007 sub-prime crisis, but hadn't really anticipated that the credit crisis will get so bad so fast.

@Manik.

There were two components of the money that was coming into India.

First was the actual capital of the investors.

Second was the leveraged part - most of which was "borrowed from the system".

I don't expect the second part to return for a few years now.

Right now, everyone is moving to cash, but sooner or later, this cash will have to be invested somewhere.

It will take some time before investors regain confidence and start buying stocks again.

The thing to remember is that the second part (leverage) had made a significant contribution to the 2003-2008 stock market rally in India.

With this leverage missing, it will nearly impossible for stocks to rally as they did in 2003-2008 period.

Investors should keep their expectations low for a few years.
 

Alchemist

Administrator
Staff member
#17
Alchem, I remember you had predicted an absolute bottom of ~10000 for sensex!
you still stick to that? or is there no bottom to this slide??
I will stick to my opinion.

10000 is around 61.8% retracement of the market's rally from 2900 to 21200.

To me, it looks like a pretty good place to get in.

Only thing that I worry about is an economic collapse in the west.

A US recession won't really do India much harm, but a severe economic collapse in the US may take Sensex to much lower levels.

If an investor doesn't want to take that risk, he should wait for more clarity to emerge.

However, if there is more clarity, there won't have such low prices...

Thus, its all about how much risk an investor is willing to take.

Personally, I am going to take this risk.
 
#18
Thanks Alchemist.

Now with the leveraged part out of the market I guess that there won't be a big rise/fall i.e., after the dust settles.

But only time will tell when the dust will settle.

In that scenario the retail investors will be a bit safe as their investments will not go into big losses / gains. I guess that point is true.

Also how should a investor go trying to get in at 10k levels.

I guess investing in very very small amounts lets say 1/10 or 1/20 every month or quarter based on the events.

I would like to welcome views from all who have been investors or people who have seen this/similar scenario in the past as they will know exactly what to do.

Now that blood was seen lets try to bring out a investing strategy.

Thanks,
Manik2012
 

Alchemist

Administrator
Staff member
#19
Now with the leveraged part out of the market I guess that there won't be a big rise/fall i.e., after the dust settles.
The deleveraging is still in process...that's one major reason for such sharp falls in equity markets.

Many overseas funds are facing redemption pressures and these funds have no choice but to sell their holdings.

No one really knows when these redemptions will stop, but long-term investors should take advantage of such forced selling to accumulate good stocks.
 

San Yad

Active member
#20
The deleveraging is still in process...that's one major reason for such sharp falls in equity markets.

Many overseas funds are facing redemption pressures and these funds have no choice but to sell their holdings.

No one really knows when these redemptions will stop, but long-term investors should take advantage of such forced selling to accumulate good stocks.
Alchemist I always hard from you "Good stocK" Nice words though..

Can you please pen down with range tentative range for long term investment.?

Happy investing!
 
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