Chanakya warned of 'Greed' & 'Fear' 300 BC in his widely acclaimed historical masterpiece on economics 'Arthashastra'. Warren Buffett, one of the world's most successful investors of 20th century says 'be Fearful when others are greedy & Greedy when others are fearful'. Greed & Fear have been and would be the two indisputable factors that would drive the markets. Extreme Greed & Fear is usually an opportunity for an exit or an entry !
Factors that led to this global meltdown are linked to sub prime losses in US (3 trillion $ and counting according to some estimates). Its true that FII's are pulling money out from emerging markets but where does India stands in all this.
High crude oil prices led to higher fiscal deficit & inflation in India. Interest climbed and it further led to lower spending and a slowdown in growth. Global crisis saw hedge funds selling in emerging markets including India. Even long only funds including MF's had to sell due to redemption's and liquidity crisis as witnessed in October 2008.
Crude is at a 3 year low. Fiscal deficit pressures are lower, inflation is dipping and interest rates are coming down. All this factors are allowing government to boost spending. FDI inflows, normal monsoon & nuclear deal are also +ve. Redemption pressures are easing off and there is some buying visible from few long only funds.
Elections, new government & its policies (also way it tackles terror) & global environment would effect future directions. However during the Food Crisis in 1970's and Foreign Exchange crisis in 1990 India has fought back and grown larger & stronger. This shows that India works well under pressure.
We remain cautiously bullish on India over medium-long term. Short term there would be volatile movements in markets till May/June 2009. Technically Nifty 1975 looks a Bear Bottom to us. Money like water will finds its way, if India recovers from temporary slowdown, new money is bound to come to equities! Being in Debt now would give 'short term safety but long term pains', whereas starting to invest in Equity may give 'short term pains but long term gains'. Returns immediately after a bear market has been historically much higher than average returns in Equities. This leads us to believe that Equity allocation in 2009 spread over 6 months (Jan-June 2009) would most likely outperform all other asset class returns on 2-3+ year horizon.
Catching a falling may give you some bleeding? but there are no gains without pains!