BELIEVE IN WHAT HE SAYS ABOUT INVESTMENTS IN 2009 ?

At the turn of the New Year, V Ramesh, CEO, Prabhudas Lilladher Financial Services Pvt Ltd, has a cheerful message for investors. He talks about why he thinks the market fall presents an opportunity rather than a challenge.

The market is in turmoil. No doubt about that. Many investors who entered it at about 15,000 Sensex levels are really ruing the current situation. I, for one, am happy about the current situation. Every one of us know that this mad rush for selling stock has happened due to the lack of control measures in the US and Europe where decade-old institutions have crumbled like a pack of cards.

When investments were flooding into the emerging markets (India being one of the favoured destinations) in 2007-08, markets were zooming from one milestone to another. This was true not just for the BRIC region (Brazil, Russia, India and China) but also for countries such as the Philippines and Vietnam. With high dollar inflows into India, the rupee grew stronger. Subsequently, we saw oil prices going through the roof. The rest, as they say, is history.

Why do I say that I am happy about the steep fall in the market? Let us analyse the situation. Most of us who have any kind of exposure in the market are sitting on a loss of portfolio value, in the 40-90 per cent range depending on when we invested.

There could be someone who entered stocks five years ago, but still has seen erosion in value. What does this mean? It simply means the erosion is only in the ‘books’. Now the dilemma that all of us go through is whether or not we should now sell.

As long as you do not sell, the loss is only notional and not actual. If you actually buy, there are some amazing bargains on Dalal Street. This calls to mind an SMS doing the rounds some time ago, which termed it a ‘Diwali sale’ on Dalal Street.

One aspect of the fall we must understand is that the FIIs and Hedge Funds are simply selling to take care of redemption demands in their home country. In simple words, they are desperate... desperate to take their cash back to their country. When they are in the sell mode, who is the buyer? It has to be locals, the Indian institutions, individuals and so on.

This is a bargain hunting time for all of us. Our institutions should surely bargain hard to get the best price when the FIIs and Hedge Funds resort to distress sales. In any case, the rule of thumb is that in any distress sale, it is always the seller who is the loser. So why make an exception in the stock market?

If FIIs and Hedge Funds continue to sell, we will get to buy shares at even cheaper prices. This would be a good investment for the future. Though temporarily there can be erosion in value, in the long term, a lower price can only help returns.

With this background, I am a little perplexed on the demand to create the ‘Market Stabilisation Fund’. Such a fund, under such circumstances, will only be shooting ourselves in the foot. Such a move will also not allow discovery of price based on demand and supply. It would mean that FIIs and Hedge Funds would get better prices than they deserve to get.

As long as FIIs and Hedge Funds continue to sell, I do not mind even if the Sensex were to plunge to 3,000 and Nifty to 1,000! After all, that only means we have a better future ahead!

So let the Mutual Funds, Insurance Companies and other domestic institutional investors bargain hard to get better prices from foreign institutions, even if that means some erosion in my current investment value. To do this, it is we, the investors, who need to continue pumping money into Mutual Funds so that they can flex their muscles. Go invest!