Dear Friends,

During this time of turbulence in the market, I must suggest you to take the wise decision to remain patient. Before I go further and discuss about the market condition. I would like to share with you some facts from the history of the market.

It is important for all investors who invest or tend to invest in equities to take a look, particularly during times when the investor feels tired and let down by the disastrous condition of this market. We need to remember that this kind of despair is not new in the market but being an investor we always keep the good time in our memory and tend to forget the days of despair.

I hope that you remember the historic bull phase of early 1990s. The most interesting development of this period was the amazing growth of investor population in the country and stock investing becoming fashionable for the first time, with new Stock Exchanges mushrooming in every nook and corner of the country. When Harshad Mehta was caught by the law enforcing agencies, the market collapsed like a pack of cards crushing millions of new investors who had entered the market during the peak time, leaving them in utter agony. The pain was much more than what we are seeing these days. The market mood was incredibly low and many investors along with doomsayers predicted the end of the market and the end of an asset class called equities. In a short span of one year from April 1992 to April 1993, investors found their wealth coming down by more than 55%. Many fortune seekers who borrowed and invested and many others who had invested their life time savings for the marriage of children to retirement life, saw their wealth disappearing in one year’s time. The painful part was that though the index came down by only 55%, many of the shares manipulated by operators came down to zero value. This tragedy occurred at a time when market regulations were weak and SEBI had no effective punitive power.

At some point of time you must have felt disappointed and angry at the way the market has been moving. In a matter of seventeen months the very same market bounced back to touch 4643 points. Think of all those who sold in disappointment during April 1993 when the index was at 1980 points! The market went up by more than 100 percent in 17 months! Just have a look at the market peaks alone. The next peak was at 6150 (in 3 years 2 months), the next at 6249 (in 2 years 3 months), then at 12671 (in 2 years), then at 14723 (in 8 months) and then at 21206 points (in 10 months). My intention is not to predict when and to where the Sensex will bounce back in the days to come, but to point out that all those who courageously got into the market in each of the troughs and waited patiently made incredible wealth as the market always peaked above the previous peak.

In this backdrop we must also analyze what is happening in the market that is pulling the Sensex down to 8700 points. Many foreign institutions and hedge funds have become bankrupt in their home countries forcing them to sell Indian assets at throwaway prices pulling our market down. One serious difference is that this time we have a global magnitude to this crash in relation to liquidity.

The one who can invest now, particularly in companies which are sitting with lots of cash in their balance sheet will make extraordinary returns when the dust settles down.

Vijay