Reality of Realty and Markets
The two similar words of the title of above article are separated by a single alphabet, I. This I is not me is not you but this I represents thousands among us who have been affected by ongoing turmoil Homeowner consolidation loans real estate( sub prime one) sector and god only knows for how long this would continue. But one thing is sure, the times ahead would be a hell lot different from the good times we had during the bull run. Of course the bull will run, but alias not at the same speed we expect it to. For every bull market is flooded by bears.
I read a column by a famous commentator; according to him one word is common in this bearish time and bullish past. The word is confidence. In bull run we had excess of it and now it has become a rare commodity( perhaps the only commodity of which there is supply crunch). Perhaps this is right also. weak US regulation is not the only exogenous reason behind the burgeoning sub prime crises. It is in fact a consequence of vast Over confidence, the confidence which was shared by millions in 70's. The market was fed by this confidence. In turn the confident feeling of people was fed by market's bull run. A kind of feed back loop was formed. A misconception was formed between people that real estate prices are headed upwards forever. This made them buy lands at exorbitant valuations in hope for a killing in future. Those who could not afford single bed room flat started buying luxury flats. US regulators thought that rising prices is a cue of growing economy and it did nothing to intervene. In fact it took pride in calling itself the friend of open markets and asked others to follow the suit. But how long could this have continued...the wall had to collapse someday...and when it did it shook others along with it and now everything is debris...
It was this confidence that lead to mortgage crises, which has engulfed the world's entire financial system in its tentacles and despite various efforts by G 8 nations the markets are not showing any sympathy towards its investors. And now no body is having the confidence to put money into market despite the fact that valuations are at all time lows in some of blue chips (globally). The greed has given way to fear. But people should understand that sage of Omaha said" buy when no one dares to buy" and I think no better time to start nibbling into select stocks. But do keep booking profits on reasonable rallies. But one should follow some restrain and should not dump entire savings into equities and other risky assets. Bear and bull runs are part of markets. Some times bull runs are extended sometimes bear runs are. But one has to give way to other. The Macro Economic Fundamentals are obviously not as bad as Markets suggest. The earnings of few top Indian companies are in line with expectations apart from the wild currency fluctuations. Crude has fallen almost 55% from their high which is good for Indian industry.
Its just this lack of confidence and direction which is affecting emerging markets so much. If capital inflows start coming back then upward spiral of Dollar would be arrested to some extent. Say Dollar settles at around 46-47 in medium term( which would take some time as I think it would touch 53-54) before coming back again. Crude should settle at around 75-80$ per barrel ( OPEC has cut supply) but supply cut I don't think would be able to match the demand cuts as was shown by US inventory data a few days ago. That would be an ideal situation for India as well Indian IT. Indian IT has proving it time and again that it has the strength to face stiff challenges( dot com burst and rupee appreciation). Even though the guidance's have been revised on downward side but still improving Economic situation could help the co's get more projects.
But the sector which would definitely feel the brunt now would be Real Estate as Economic Regulators across the world would be more aware of the implications which could result if you allow too much lenience. But still Indian real estate sector is somewhat insulated from what happened in US due to strict intervention from RBI. So its time to be confident and face the crises but one should also see the opportunity which it has given it and we should also learn from the crises. Markets do have a mind, but alas they don't think like we do...
A look at the Sensex is more than enough to justify buying into Real Estate stocks which are beaten down to death but still hold good value.Real estate always follows a cyclical pattern and touches extremes. Stocks like Uni-tech, Dlf, Gmr Infra etc are available at dirt cheap prices at current trading levels.Now,the trade pundits will tell you to keep away for reality but tell me this,"have the underlying business model and the management of these companies have become faulty all of a sudden".The answer is no,its just the global turmoil and the financial crisis that has bought the prices of these stocks down. So, if i was sitting on cash like you are:-), I would go on a rampage and pick these selected ones and build a healthy portfolio for the future.
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posted by datdk @ 8:24 AM
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