Markets
Equity markets inIndiaand across the world witnessed one of the worst months in recent times falling over 16%. The extent of correction during the month was even more severe, but recovered some of the losses towards the end of the month. Maximum fall was witnessed in some of the highly speculative stocks, where valuations were stretched. A fair number of stocks fell over 50% during the month.
Environment
At the heart of current problems being faced by global markets is a threat of recession in US. The US economy is 15 times the size of the Indian economy and growth concerns in US will have impact on the Indian economy. With the US economy facing a serious credit crisis and slow down in its housing market, one runs the risk of slow down in Foreign investments in India. We have already seen about $ 3 billion taken out of Indian markets in recent times. The risk that we run in India is an asset price correction, rather than the risk of economic slowdown. As long as one takes a cautious approach to the price that one is willing to pay for securities, the portfolio should do well.
There does not seem to be any major risk of Indian economy slowing down. So far corporate growth numbers continues to be strong, especially the infrastructure related space. One of the most important factors in India is that the country has been able to sustain a reasonably high growth trajectory despite interest rates having gone up 4% over the past 18 months. We believe the economy has substantial cushion to energize the system through interest rate cuts, as and when there is an economic slow down.
Companies
In the context of a global financial market correction, we believe the right approach to investing should be focused on sustainable and recession proof growth stocks. Prices are quite attractive in pockets, after the correction over the past month. Some of the sustainable growth stocks like Crisil, Gruh, HDFC bank, etc held up quite well, but we saw some severe correction among stocks that had run up quite sharply in Dec 07. It looks like the correction over the past month was over done and one should see the market revert back to more realistic levels over the coming few weeks.