End of the 9% growth dream???


After four years of boasting of 9% GDP growth, and talking of overtaking China, Indians are reluctant to believe that the economy is headed for a serious fall. But the stock market has crashed, an indication of the pain ahead.
Western observers have been lavishing praise on India as a coming economic superpower. So, many Indians believe we have achieved 9% growth because we are so clever and resourceful. This is a delusion of grandeur. In fact, a global tide has lifted the whole world economy and India along with all others. Now that the global tide is crashing, India will fall with all others. Given our strengths, we will not suffer as badly as some others. But suffer we will.

After more than a decade of 6% growth, India accelerated to almost 9% in the last four years. But sub-Saharan Africa also accelerated, from 2.4% per year in the 1990s to almost 5.8% in the last four years, a stronger acceleration than in India!

Azerbaijan grew by a whopping 31% in 2006 and maybe 27% in 2007. Turkmenistan grew by 18% in 2006.

Sudan has a civil war and genocide in Darfur, but its latest growth rate is a staggering 12%. Rwanda, where genocide was made famous by the film Hotel Rwanda, is enjoying 8.5% growth. Liberia, site of the Hollywood hit Blood Diamond, is growing at 9%.

So, India's 9% growth in the last four years is not exceptional. All countries have been lifted by a global tide. What caused the tide to rise, and why is it now ebbing?

The core cause of the boom was huge overspending by Americans in the last decade, based on a long housing boom. Americans borrowed ever more billions against their rising property values, and went on a spending spree that greatly exceeded their disposable incomes. Overspending led to a record US trade deficit of $700 billion/year.

The mirror image of this was rising trade surpluses (and hence forex reserves) in other countries. These forex surpluses were used to buy US securities, depressing US interest rates and making borrowing even more attractive. Americans borrowed still more, spent still more, and imported still more.

This created a huge consumption-based growth cycle across the globe. The US consumer splurge was especially helpful to China, the most competitive exporter of manufactures, which grew rapidly through an export boom. India, which exported competitive services, also benefited. Other Asian countries from Vietnam to Pakistan also started growing at rapid rates.

But these Asian countries needed to import huge quantities of commodities, partly for conversion into manufactures for export, and partly to meet rising domestic needs. So, the global demand for commodities skyrocketed, lifting all exporters of commodities. These countries were mainly in central Asia, Africa and Latin America. All joined the great global boom.

Alas, no boom based on over-consumption can last forever. The US housing bubble burst, and prices started falling. This revealed the ugly fact that many lenders had made huge property loans to people who could not or would not repay. Banks and other mortgage lenders suddenly found themselves with hundreds of billions of bad debts. The consequent financial crunch hit the whole US economy. This now threatens a recession, which will lower consumer spending.

Less US spending will mean a big drop in US imports from Asia. When that happens, Asia will demand less commodities from Africa, Latin America and Central Asia. So, the very countries that benefited from US overspending will now suffer as US spending declines.

How bad will the impact on India be? It all depends on the pace at which the US reduces its overspending to manageable proportions. Let us consider three scenarios.

In scenario 1, the US will have only a slowdown, not an outright recession, and will recover in the second half of 2009. So, there will be just a small blip in overspending, which will soon resume.

More realistic is scenario 2, which postulates a recession for two or three quarters in the US, followed by recovery in 2009. This will hit the global economy significantly. Indian growth will decline to 7%.

In scenario 3, the US will suffer a prolonged slowdown-cum-recession for 18 months or more. This is very unlikely, given the ammunition available with the US Fed to revive the economy. Yet, a cold shiver is running down the spines of stock market experts, who feel there is a small but significant chance of a long, painful slowdown. That will translate into huge global pain.

In scenario 3, India's GDP growth will fall to 6%. That is no higher than in the 1990s. And same phase India is facing this time. This does not mean that all recent progress has been illusory. India has raised its savings rate to 34%, and built up strong skills that are here to stay. But our sustainable long-term growth rate, in less-than-booming global conditions, may be only 7-8%. Let's not get carried away by the last four years and lets see what happens ahead. Hope for the best and we can expect good placements these season.
Sab kahte hai karm karo, fal ki iccha mat karo- but can we do that?
I think no, so wish hard to get good results always because you have worked hard for it!!!!

Regards
Garvit D Dave
garvitdave@gmail.com

FIRST STEP GUIDE TO STOCK MARKET

WHAT IS SHARE/STOCK???
Each share is a small piece of ownership

Before getting into it YOU NEED-:
ü Demat account
ü Trading account
ü Money
ü Clear objectives
ü Patience

SO HOW DOES ONE BUY SHARES?
Purchase shares from the primary market (i.e. IPO's)
Trade in the Secondary Market.


The price of every stock increases or decreases for the following possible reasons:

Ø News about company
Ø News about country
Ø Expectations
Ø Demand and Supply

BENEFITS OF INVESTING IN STOCK MARKET-:
Ø Dividends
Ø Capital gains
Ø Security and collateral
Ø Easy liquidity
Ø Unbeatable tax benefits

RISK & EXPENSES-:
• Inflation eats up into your money
• Capital gains tax: 15% for stock if you keep stock up for 1 year
• Securities transaction tax: 0.075%, both at the time of sale and purchase in case of delivery-based transaction in equities
• Depository fees
• Broking charges


MYTHS!!!!
Ø Investing in stocks is just like gambling.
Ø Only brokers and rich people make money.
Ø Fallen angels will all go back up, eventually.
Ø Stocks that go up must come down.
Ø Indian currency is strong that will always appreciate.
Ø P-Notes and strong FII flows and increasing stock prices are signs of how well we are doing as an economy.


REASONS FOR VOLATILITY IN MARKET-:
• Day traders role
• Global economy slowdown
• Inflation effect
• Crude oil prices
• FIIs role


HOW TO MAKE MONEY-:
Ø Check portfolio of company.
Ø P/E ratio analysis. (price earning)
Ø Peg analysis. ( profit earning to growth ratio)
Ø Grill your broker.
Ø Mutual funds. ( let your money manage others)
Ø Keep yourself updated


RULES TO FOLLOW-:

Ø BUY LOW SELL HIGH
Ø BASED ON NEWS
Ø “HOT STOCK” IS NOTHING
Ø BUY WHEN EVERYONE SELLS
Ø GIVE TIME TO YOUR STOCK
Ø DIVERSIFY PORTFOLIO
Ø CONSIDER FUTURE GROWTH
Ø BE READY TO LOSE MONEY


WARNING!!!

STOCK MARKET INVESTMENT IS SUBJECTED TO MARKET RISK

REGARDS

GARVIT D DAVE