The Indian stock market plummeted by a whooping 2062 points on 21st January, 2008 reverberating an echo of distress, engineered by the waning market in the United States. As 6.7 Lakh Crore worth of net capitalization vanished from the Indian market, the investors rummaged around for the culprit.
The sub prime mortgage crisis brought about due to the reckless lending by American financial institutions to borrowers with low credit rating was identified as one of the primary causes for the liquidity crisis and a general slowdown in the US market. Europe, Japan, Korea, Hong Kong, Singapore were all victims of this devastation. Leading financial institutions like Citibank, Bank of America, Macquarie bank, and several mutual and hedge fund companies had several billions wiped off from their profits.
The voice that persisted in the leading emerging markets, India and China about being insulated or decoupled could no more be trusted. They had failed miserably.
On 23rd January, the biggest intra day fall of 2300 points on the Sensex was recorded.
The responsibility of this crash in the Indian market would also have to be shared by foreign investors who imprudently, sold shares worth 15000 crores, killing investors, portfolio managers, and stock brokers financially. One may also point an accusing finger at our market regulators who failed to acknowledge that several shares had been overpriced for their valuations. Excessive speculation could have been cured by imposing hefty margins on brokers. The failure to do so cost our retailers and small investors, 30- 50% of their investments in the matter of 2 days.
In the aftermath of this dramatic fall, it becomes indispensable to understand that stock market operations are price- time opportunities.
It must also be noted here, that the point of investing is not to guess the future, but to act on new information before the whole world pounces on the idea. The new challenges like US recession, dollar’s vulnerability against major currencies of the world, the interest rates cut by the US Fed, the final Indian budget (election budget) leave room for conjecture about whether our market will fight the onslaught and revive or turn docile driving the Sensex below 14000.
The sub prime mortgage crisis brought about due to the reckless lending by American financial institutions to borrowers with low credit rating was identified as one of the primary causes for the liquidity crisis and a general slowdown in the US market. Europe, Japan, Korea, Hong Kong, Singapore were all victims of this devastation. Leading financial institutions like Citibank, Bank of America, Macquarie bank, and several mutual and hedge fund companies had several billions wiped off from their profits.
The voice that persisted in the leading emerging markets, India and China about being insulated or decoupled could no more be trusted. They had failed miserably.
On 23rd January, the biggest intra day fall of 2300 points on the Sensex was recorded.
The responsibility of this crash in the Indian market would also have to be shared by foreign investors who imprudently, sold shares worth 15000 crores, killing investors, portfolio managers, and stock brokers financially. One may also point an accusing finger at our market regulators who failed to acknowledge that several shares had been overpriced for their valuations. Excessive speculation could have been cured by imposing hefty margins on brokers. The failure to do so cost our retailers and small investors, 30- 50% of their investments in the matter of 2 days.
In the aftermath of this dramatic fall, it becomes indispensable to understand that stock market operations are price- time opportunities.
It must also be noted here, that the point of investing is not to guess the future, but to act on new information before the whole world pounces on the idea. The new challenges like US recession, dollar’s vulnerability against major currencies of the world, the interest rates cut by the US Fed, the final Indian budget (election budget) leave room for conjecture about whether our market will fight the onslaught and revive or turn docile driving the Sensex below 14000.
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