Im sure that this question is hitting a lot of us investors lately. The way the markets have taken such a serious downturn, everything is looking really scary. There is debt concerns in all over Europe and USA and investors are panicking and selling off equities and other type of assets. Indian markets are too not spared and we have dipped below 5400 and 5350 as well, inching back to the same old all time mega support levels of 5200. A lot of people have started believing that this time, we are in for a bigger trouble than we were in the past. There is a concern on the macro level as well as global level. In terms of macro level, the inflation refuses to go down and so RBI refuses to stop hiking rate of interest. RBI is clearly asking us to slow down the demand before our pockets go empty.

On the global side, we had faced Greece debt worries which got resolved and now we have Italy and Spain on the list of debt worries. Then there is USA that had hit the debt ceiling and thus they managed to raise the debt limit, so they can borrow more and more to spend on their people and activities like war. With Europe and USA going into big problems, it is posing a serious threat to the economy and any more serious issues might lead us to another recession. Companies in the USA have already started sacking people to save money incase they hit some kind of economy problems. USA jobs data is going worse every month and unemployment is rising. All these are the concerns of the west that will directly or indirectly hit the whole world.

However there are also a couple of positive signs from all of this. Firstly the crude is on its way down. From $112 per barrel in the recent past, Nymex Crude has come down to 87 today as we speak. This is because due to slowdown in USA, the demand for crude has gone down and thus for second consecutive week, their crude oil reserves have gone up. USA is the biggest consumer of crude and if demand slows there, it will definitely hit the price of oil. On the other hand, Im also expecting the international prices of commodities to come down sharply. If we are literally hitting a slowdown then there is no way why the raw material prices would continue to be at elevated prices. The commodities have to correct, those ridiculously high prices have to finally come down. This would mean that our inflation is also going to take a hit, it will take some time, but it will definitely happen.

So in all, the worst news of global and macro concerns lingers on our head for today, but global concerns will indirectly help macro concerns to improve atleast from the inflation perspective. Does the inflation come down, we’re going to see RBI stop the rate interest hikes. If inflation comes down sharply, then RBI will start reducing the rate of interests to infuse liquidity. All in all I feel that if the inflated commodity prices go down, it is actually very positive for India in the long term.

What should you do in the current environment?

I would personally ask to take wait and watch approach. Till a week ago things were not looking so bad but now atleast in the short term, everything is looking scary now. So avoid buying into this market at this point of time. Kindly adopt wait and watch approach and try to maintain cash levels. If you are a short to medium term investor and are sitting in decent profits in any company, better to book your profits and maintain cash levels for now. If you are in a loss in any good company that is and will continue to post good results, then maintain a hold on them. Long term investors need not get scared, just make sure to buy when markets bottom out.

My suggestion is to maintain some cash levels so if our markets dip further, we’ll have something to purchase off at all time low levels. I don’t know anymore that 5200 on the nifty will hold or not, but around that or levels below that, I will become a buyer again. Let other people panic sell off, make use of that panic sell off to accumulate good quality stocks at cheaper valuations.

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3. My Views On The Market
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