2008 Déjà Vu? Not Really!

Those of you who have been tracking the equity market for a decade and a half might be getting a sense of déjà vu. The failure of banks on both sides of the Atlantic Ocean is bringing back memories of 2007 and 2008. Finance companies, including banks, fell like ninepins due to the subprime crisis that unfolded during 2007-08. This finally led to one of the biggest global financial crisis after 1929. It reached its nadir with the collapse of Lehman Brothers, the fourth-largest investment bank of the US at that time with USD 639 billion in assets. Fortunately, I do not see the current situation getting anywhere even close to that. 

Remember that the equity market hardly falls twice for the same reason. Regulators and other financial institutions are now better prepared to handle the situation. It is an irony that the current situation is not owing to bad lending practice but primarily because of holding government securities. As the US Federal Reserve kept on raising the interest rates, it led to treasury losses for the bank. Besides, the piecemeal implementation of Basel III implementation also created lower liquidity ratio, thus adding to the ongoing woes.

Indian banks are in a much better shape and a stress test done at the end of last year by the Reserve Bank of India shows that they have recovered strongly post the pandemic and have enough capital to meet the regulatory requirements even in the worst-case scenario. Yes, we need to be cognizant on how the current situation pans out as in the present highly interconnected world one can fail to identify from where the contagion will seep in. Our experience of global financial crisis shows that we are not decoupled from the rest of the world, and we will feel the impact, albeit with lower intensity. 

Therefore, we suggest you all to abstain from bottom fishing on fallen stocks and only consider investing your funds in quality names that have lower volatility. There is no better way to play the markets in volatile times than to invest in high-quality Large-Cap stocks. In this special edition, which we proudly call as the ‘large-cap issue’ we have discussed at length the performance of large-cap stocks and have focused on the merits of investing in them. We have published a complete list of large-cap stocks along with their ranks based on certain metrics. 

In our special story we have talked about value stocks and their relevance in the current market situation. It is important to focus on valuations while picking quality stocks. How does one prepare to invest during times of uncertainty? How do you park funds in equities when a recession may be looming around to hit the largest economy in the world? And most importantly, how does one remain invested when the stock prices are falling almost on a daily basis? These are the most pertinent questions facing the investors. While the macro headwinds are clearly visible, the ray of hope for investors remains the economic growth of India and the resilience in service exports and earnings’ quality. 

Another most important aspect that must not be ignored by investors is the fact that the valuations are getting attractive with every market fall. The Nifty PE now stands at the 10-year average. I can see that several stocks in the broader markets that are already down by more than 50 per cent without much change in the fundamentals are turning out to be attractive buys. Consider the current weak market scenario as a blessing in disguise. Would you want to miss out on the next bullish run in waiting? So, stay positive, start accumulating in a staggered manner and don’t try to time the bottom!
 

RAJESH V PADODE
Managing Director & Editor