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Monday, June 20, 2011

Indian stock markets crashing – What to do now?

Indian stock markets went on crashing by almost 2% on June 20th. What are the reasons behind this stock market crash and what should you be doing in such times?

This crash was mainly due to reports of bringing Mauritius fund inflows in Indian stocks markets under tax net by Indian government. Huge numbers of FII’s and foreign investors have created their investment vehicles in Mauritius to take benefits of status of Mauritius as tax heaven country.

All these investors, invested heavily in Indian stock markets, if brought under tax net, stand to lose good amount of their money they made from India and so this rush to sell stocks in Indian stock markets and send their money back to wherever their roots are before the tax treaty picture becomes clearer by Indian government.

Apart from this, there are more reasons for this crash. European debt crisis being one of them. The issue of money lent to Greece is one of them. Greece cannot repay the money back in the time frame for which it was given the money as loan. They simply don’t have the economy to do that. They don’t have income generating businesses in country who can pay government thru taxes.

US is approaching fast to the defaulting timelines without any solutions yet. They can’t payback the huge debt they carry and they can’t print more money to pay back as it would devalue the dollar as currency. It is sort of a deadlock!

On top of this, “the great Indian inflation story”, rising interest rates with corrupt Congress led government in India is making its inroad to slow the new investments in India and slow down the industrial production with overall economy.

All these issues seem to be hovering over stock markets, not only in India but world stock markets too. And to get the clearer picture, it might take another 3-6 months from today.

The best approach in such time would be to stay in side lines, wait for some more clarity on all these fronts, do not invest money in stock market as fresh investment. And if you are seating on healthy profits, consider selling stocks and re-enter at lower levels. Do some stock research, find out best stocks to buy which has lower or no debt in their books, if not great but healthy growth rate and possibility of business that is recession proof. This could be a good time to buy stocks from next 3 - 4 years perspective. I do not have any short term stock trading ideas.

I would keep searching for some good stocks to buy in such environment and post on IndianStocksNews.com regularly, if you like the ideas, do more research and start buying stocks of those companies whenever valuations are cheap for long term investing.

Feel free to share your thoughts and post a comment using below comment form.

5 comments:

  1. I would rather advice people to buy in smaller quantity. Don't panic or drive people to fear. Fear in market is the best time to buy. Greed in the market is best time to sell. There are good stocks quoting cheap already. If you are going to invest 100 Rs in that stock then start buying worth of 10 Rs now so that you do not lose out on opportunity.

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  2. Can you please short list the shares which one should buy when market go south?

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  3. Is this the time to take the money of the table and wait for correction to end and buy at the bottom??

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  4. @Sana: I will start doing it very soon.

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  5. @Optimist: No one can time the markets. We should look at individual stocks, their valuations and buy stocks in chunks so buying cost is averaged out. I agree with Mehul Rajput's above comment. Only suggestion I would add to it is, look at the fundamentals of stock you want to buy and start buying in small quantities.

    At this point of time, markets are very unstable due to all above factors. I expect many to things to get clearer in next 2-3 months. Markets may get corrected more during this period and so being cautious would be a good thing to do.

    Hold onto your money, if markets correct further by, say another 500-1000 points (BSE), start buying stocks which are good and cheap in valuations with sound fundamentals in small quantities. I f markets do not correct further, it would still remain in range for long time and you can pick good stocks chunk by chunk.

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