The Hindu Business Line : Engine trouble

None of the ostensible causes for the meltdown in the Sensex in recent weeks is India-specific. In fact, they are either the troubles in the US economy or linked to them.

Globalisation is a double-edged sword. The lesson was brutally rammed in, yet again, on Monday when the domestic markets — stock and money — went into a tailspin following the news of the US securities firm, Bear Stearns, going belly up and being sold over the week-end to JPMorgan Chase at a dirt-cheap valuation. In fact, this is not the first occasion in recent times when financial troubles from distant lands, specifically the US, have washed up on Indian shor es. Ever since the credit market crisis started unravelling in the US just over a year ago, markets worldwide, including India’s, have been hit periodically. The problem though is that the crisis is still far from ended, with the gaping hole in the US financial system only getting deeper, leading the global financial markets to despair. The stunning debacle of Bear Stearns, which follows huge provisions for losses made by other blue-chip banks such as Citigroup, UBS and Stanchart, to name a few, has only heightened the anxiety levels in an already nervous market. Where the next distress call is going to come from, is the question that is on everyone’s mind.

Meanwhile, for all those local advocates of the “de-coupling” theory, recent events must be an eye-opener. None of the ostensible causes for the meltdown in the Sensex in recent weeks is India-specific. In fact, they are either the troubles in the US economy or linked to them, whether it is the shock waves from the Bear Stearns crisis or the fears of impending recession in the US or even the unwinding of the yen-carry trade. For all the talk of China and India driving global economic growth, the fact remains that the US is still the locomotive for the global economy and when the locomotive sputters or runs out of steam, the train has to slow down. Domestic investors must also be learning the hard way about how fickle global portfolio flows can be. If savvy foreign institutional investors could borrow in “cheap” currencies such as the Japanese yen and the Swiss franc to invest in Indian stocks, they can also sell and take the first ship out when those cheap currencies start appreciating. In other words, what comes around has to go around!

So, what is the advice for domestic investors? Granted that they could be extremely nervous what will all those wealth destroyed in no time. Yet, this could be the time for them to pick and choose stocks carefully to invest for the long term. The domestic growth story is still largely intact and the stocks of a number of world-class companies are now available at relatively good prices. But investors should keep in mind the bottomline: They may be investing in an Indian stock but could well be buying a piece of global destiny.

Related Stories:
Bears tear stocks apart
‘US sub-prime crisis impacting India in a moderate way’
Many scrips hit 52-week lows

More Stories on : Editorial | Financial Markets | Mortgage

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Engine trouble

Need for boost from Finance Commission

The sinking flagships of the UPA

Testing times for ruling coalition

Will the US remain US? Or become a neo-USSR?

The road ahead for SEBI

Moneylenders and farmers

New growth models