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Rediff News  All News  » Business » What if markets crashing? It's time to invest!

What if markets crashing? It's time to invest!

November 24, 2008 17:46 IST

The economic crisis that started with the sub-prime crisis in the US, has hit not just Europe and other developed nations, but also emerging economies like India and China.

As stock markets around the world melted, liquidity became scarce and investment avenues dried up.

The ripple effect is being felt in almost all sectors, as cautious customers planning for the future and cutting down on expenses are investing in safer instruments like fixed deposits.

For how long will this recession continue? How badly will India be affected? To what extent will the country's growth get hit? What should investers do in such critical times?

In an hour-long chat with on Monday, Shailesh Mehta, founder & CEO, replied to many such readers' queries. Here is the transcript:

rajib c asked, How do you see pvt sector banks in India doing in next 1 year in view of global meltdown?
Shailesh Mehta answers,  at 2008-11-24 14:36:07Global meltdown has badly affected banking industry mainly because of toxic assets which are basically bad loans advanced to people for buying houses who had -NINJA No Jobs, Income and Asseets. These were advanced when interest rates were falling and banks world over especially in the US were following easy money or easy availability of money . Then prices of houses started falling, interset rates were falling and hence people defaulted dlue to their inability to servie higher EMIs and hence defaults. Indian banks do not have any significant exposure of these toxic assets and hence are unlikely to have any major impact due that howerver foreign subsidiaries of some banks have such assests but not to any signifant extent
Manjunatha asked, hi Sir, I have bought 125 Unitech shares at 140. Now it is 29. Should I buy more now or hold?
Shailesh Mehta answers, If you are a long term investor with guts you can buy in small quantitites of good companies spread over next 1 year as markets may take some more time to digest all the bad news which are coming
DS asked, Hello Shailesh, Pl advise best way to clear high interest house loans
Shailesh Mehta answers, Now the interest rates are set to fall and no way intersest rates can go up from here. We are in times of recession and Central banks follow policy of easy money and low interest. So if you are able to service your loans over peiod of time you need not return otherwise it is always good to reduce one's liabilty by preparying the loan with high interest/EXI especially if you do see uncertainty on your personal income front
Abhinav asked, Did the market the touch the bottom or you see a further downfall?
Shailesh Mehta answers, See not event the most brilliant investor has been able to time the market meaning, buy when the market is lowest and sell when it is highest. Hence ruling out that, you can star accumulating shares now and next 6-9 months are good time to buy with an investment horizon of 2-3 years and you will definitelyl earn handsomely
sunnysun asked, Dear Sir, there are two views regarding our ousourcing industry, especially the Legal Outsourcing. One says that we will see an enormous growth in this sector because institutions and Companies who were earlier reluctant to outsourcing their "confidential" work will be forced to do so to reduce the cost. The other view suggests that there will be less work for our LPO's and KPO's because the professionals there would be forced to ask lesser payments to retain their clients and may not renew annual contracts with our players. Your take. I would also like to know if this is the right time to venture out an outsourcing firm or would it be better to wait for the ripples to settle. Thanks and Regards.
Shailesh Mehta answers, Outsourcing is hereto stay. Both the point of views have merit. WIth the decline in rates, too the differnce in legal costs between US and India is still vast. It is possible some customer will ask for some discount for continued outsourcing .
praveen job looser in the crisis asked, praveen job looser in the crisis says, Sir what is the future for IT and BPO industry in next 3 years?wheather biggies like infy tcs wirpo sattyam survive?
Shailesh Mehta answers, These companies have good cash balance and hence no problem for their survival. However, their growth engine will be affected, margins under pressure and their valuation will be down from the stratosphere it had reached. At the same time their share have come down drastrically and they will diversify to APAC countries, India which are less affected Though again revenue will be less their will continue on a growth tragectory after couple of years though will lesser margins
nasserhome asked, when the us economy is in a mess how come the value of their dollar is so high- is it because they have manipulated OPEC so that all oil deals in dollars and do not allow other currencies to be used to trade in oil??
Shailesh Mehta answers, This is an interesting question. The money is coming back to US funds,banks are selling local currency and buying US to plough bakc in their parents this is the reason for upsurge in demand for dollars
and rise in dollar value else the US economy is in shambles as we all know but then economics works some time in strange ways!
abhishek asked, Is it safe to invest in Tax saving Mutual funds this year
Shailesh Mehta answers, Tax savings mututal funds have a investment horizon of 3 yrs or more and there India's economy will definitely take positive upturn by that time
Ramesh asked, For Debt Investors (Just retired) like me, is it worth going for Government Securities Mutual funds or Medium term debt funds. I notice that many Debt funds have invested in papers linked to real estate and auto and credit card loans thro' Special investment vehicles. Please advise.
Shailesh Mehta answers, It is a difficult question you have asked. The trouble is we do not know exposure of such funds in various asset class you've mentioned. ALl the same they are good invesment vehicle and keepin money in banks does not earn you much. I will venture to say that You should invest in either debt funds or balance funds who invest both in equity and debts in the ratio of 60: 40
rajib chatterjee asked, Does our banking sector have the risk of job cut or salary reductions like Citi Bank or Jet?
Shailesh Mehta answers, This is an important question you've asked. The banks arent lending the way they were doing earlier. Suddently from being easy in giving loans they have become extremely miser and that is where the problem. This will affect their balance sheet too if they are not lending their income will go down and if they to maintin their heads above water some way they have to find to cut costs. Though public sector banks will definitely not do for fear of govt reprisls
Kamakshi asked, Why is the world view on outsourcing so negative?
Shailesh Mehta answers, See you are taking away some body else jobs which no body likes. However chinese factores cranking out million of tons of goods is also in one sense outsourcing
Shailesh Mehta answers, It also depneds on your expenses. Pl write down all your monthly and one off type of monthly expenses and see what is left then you should decide. Besides, you should provide for emergencies too
bhavesh asked, sir, do u think their the financial slow down will impact tier-2, 3 and tier 4 city more then tier -1 city?
Shailesh Mehta answers, Cities like Tirupur are badly affected as they are depnendant on exports other wise cities which are more globalised depnedent on exports or industries which are worst affected by slow down and which are located in the respective citise are affected more. Real estate , stock market, a(not insurance), auto,,export sector are worst affected. However, insuraance agriculture, services industry are doing well and not affected much
Shreenath asked, when do you think we will see some positiveness in the economy and what will be trigger point?
Shailesh Mehta answers, It is said that extreme boom gives way to bust and extreme depression also gives way to recovery. Low oil prices, commodity prices, banks starting to lend, govt announcing fiscal measures like excise/sales tax cut will have salutory effect and we shall see recovery say some time in 3rd quarter of next year.
vineet asked, Do u see any impact on middle east countries, specially Kuwait?
Shailesh Mehta answers, They are also affected due to steep slide in oil hence they will stop number of discretionary spending and the word austerity will reappear in their dictionary
Megastar asked, Once the market volatility is over, which country you think that FIIs will prefer to invest ? What is India's position ? When do you expect the turmoil to be over ?
Shailesh Mehta answers, Very intersting question. Long term india story remains due to skiled population, relatively high growth, largely unaffected economy due to recession etc. However, next election should bring in stable govt and follow aggressive remors in varous sector that will definitely bring back FIIs
Krishnan asked, Sir dont you think reducing the interst rates to 7% levels and encouraging banks to lend aggressively can help us to kickstart our Indusrty especially Auto and Real estate? We as Indians have not changed in our crediibitlity in 3 months time have we?
Shailesh Mehta answers, Yes you are very much right. However, banks will not lend aggressively as in the past. What we want they shold invest selectively which is also a problem today . It is understandable that norms for lending have to be tightened to avoid credit crisis but unfortunatley at this moement the pendulum is swinig at the other end. I belive if RBI goes for aggressive CRR cut (say 2-2.5%) and Deep repo cut say 2-2.5% banks will be forced to lend and situation will improve
Shailesh Mehta says, Dear All, It was really pleasure interacting with you and sharing your concerns about these tough times. Unfortunately, howsoever i would like I have to close here for shortage of time. WIsh all of you best luck! Thank you!