March 2008

Markets

The negative trend, that began in January 08, continued during the current month. Markets inIndiaand across the world continued to come under the pressure of the restructuring in the global financial system. At the worst point, markets were down 15% for the month, but some recovery towards the end of the month helped the markets close about 10% negative.

Environment

Equity markets in India was hit due to continuing negative sentiment across the world arising from the weakness in the bond markets. It is important to note that the problem that started with weakness in the sub-prime market has shifted to the highly rated AAA bonds. Mis-pricing of AAA securities do not normally last very long and some correction in the immediate problem. On the other hand, the global financial system seems to be at a turning point and would need to reinvest several structures of financial and the period of reinvention may take a few years.

Several people have been asking how some problem in US can affect equity markets in India. Equity markets, to a large extent, are priced based on future expectation and the confidence that one has in the future growth and earnings power of companies. A slowdown in the global mortgage market and methods of financing will have an impact on Indian property prices and to that extent property companies are affected. Similarly, a US slow down can affect the prospects of the Indian IT companies, etc. Major events in the financial systems do affect the confidence in the future, leading to some re-pricing in equity markets.

After the correction witnessed over the past 2 months, we are starting to see good values in the mid-cap space and some of the quality larger caps have started to give some opportunity to build out core positions.