I was witness last week to one of the most turbulent market movements. The turbulence is not only in stock markets across the globe but also in currency and commodity markets.
Currency market operations:
The turbulence in the currency markets (as I am in the business of foreign exchange operations) over the last two days are attributed to the sub-prime crisis in US and the resulting liquidity problems worldwide. The last two days have been tough from the operations perspective. The volumes have multiplied many times across the foreign exchange markets causing a strain on the global settlment systems. Unlike stock and securities markets, which are country specific, foreign exchange trades are mostly settled through the CLS Bank. This helps the counterparties to the trade to reduce the settlement risk to a greater extend. Due to high volumes, we have seen significant delays in getting deals confirmed, status update messages from CLS Bank and other activities. I was told that the volumes were higher by more than 150% in the last 2 days. I know of couple of my colleagues who have worked 24 hours at a stretch to complete the work. Hats off to them. We are keeping our fingers crossed with regard how the coming Monday is going to be.
Stock markets were volatile from the begining of the week. Thursday turned out to be a big day in the history of Indian stock markets losses. It is one of the steepest falls witnessed in the history of BSE to my memory. On a closer look I find that the "A" Group shares bore the burnt to the maximum. This is nothing but natural because they have gone up the highest in the last 3-4 months. FII's and hedge funds were selling in stock markets and commodity markets to tide over their losses in credit markets. The commodity stocks were completed thrashed on Friday with BSE Metal Index being a net loser of 7.4%. Tata Steel fell by more than 15% in the last two days.
Developments after closing hours:
The Federal Reserve cut the benchmark rate by 50 basis points has helped to stem the losses on the American bourses yesterday. As one analyst remarked, Fed has shown the way where people can borrow money now. I am sure US doesnt want a recession induced by sub-prime crisis with just a year to go for election. They will try to do whatever they could to keep the economy going.
The last time it was yen-carry trade:
I recollect the last time when the world markets went in tizzy during the unwinding of yen-carry trades. Then again it was believed that the bull market of the emerging markets are going to end. After that we have seen the market rise steeply. I am firm believer of Indian stocks and I think we will be able to overcome this sub-prime issue also.
What a normal investor should do?
Normally these type of turbulent markets gives very good opportunity to buy real gems. Warren Buffet has even re-emphasised this fact yesterday in his interview to CNBC stating that credit market chaos may give opportunity to buy stocks.
Try to analyse the fall and find out stocks which has become cheaper with the growth story intact. I will go by the following:
1. Stocks which can grow even if there is recession in the US. ( e.g.,FMCG - higher domestic demand)
2. Stocks which has domestic growth thrust. (e.g.,Power, Infrastructure, Realty )
One stock which has really come down drastically in the last 1 month or so is Gateway Distripaks Ltd., (GTL). I saw it trading around 122 on Friday. I have seen last month it was trading around 190 levels. Needs to be investigated a bit more closely to understand the reasons for the fall.
Lets hope the next week is much better for the markets. Happy weekend to all!!