Pithaly

Update: Consensus on growth of the Sensex basket of stocks is still 20%, whereas the growth in the 1st quarter is 5%. And this is the best quarter of the year!

Expect 10,500 as a minimum with an over shoot down to 9,000 in the next 6 to 12 months.

A PE ratio of the sensex o t 15 plus is still very expensive. Remember, the PE ratio was around 8 in March 2003, so one could expect at best a bottoming of the market at a sensex PE of say, 10 plus.

That's a long way down from here.

Indians sold out for paper:

Indians who sold their gold in 2007 to buy stocks are now paying out the wazoo for their gross misjudgment. In January of 2008, the Bombay Stock Exchange fell by more than 4,000 points. It is now a full 8,000 points short of its January 8th peak, while gold is $70 higher than it was then.

Ironically, on January 17th, the article Indians Sell Gold – and their Future was published. The following day, the Bombay Stock Exchange (BSE) lived up to its name and bombed from 21,000 all the way down to 17,000.

The BSE has never recovered.

It most recently has desperately tried to cling to the 14,000-level in hopes of avoiding further drops down to 9,000 and below – and failed, only to slip down to 13,000. That's the same level where it was in November of 2006, twenty months ago. At that time, gold stood at around $470. Now, gold costs nearly twice as much.

Most of the gains the Indian stockists enjoyed since then are now little more than vapors in their memory. All of the gains of gold since then are still there. Maybe diversifying into some stocks in addition to gold would have made better sense – but selling gold for regular stocks?
Ouch!

They should have known better.

What's the lesson? It pays big bucks to ignore the siren song of the paper-pushers: "Come, my poor peasant friend. Sell your clumsy gold and open a brand-new bank account with us. Then, you can buy and sell Indian stocks through our in-house brokerage service and support your country's powerful economy."

Now, the gold is gone, and so is much of the money they sunk into their paper stocks. What will Indians do? Will they return to gold?

In June, Indian gold buying dropped to a third of what Indians bought during June a year ago. They are still waiting for lower prices. Doesn't seem to be happening. Lower than now, maybe – but lower than the $650/oz. in June of 2007? Forget it!

The BSE's blue 50-day moving average has fallen way below the red 200-day MA, and its descent is accelerating. Gold, on the other hand, has never touched its own 200-DMA, and its 50-DMA rests securely above its longer term colleague and has recently turned north again.
However expensive Indians may perceive gold to be right now, it would be wise for them to put whatever disposable income, cash (and stock) assets they have back into gold. The rupee's fall makes holding cash unattractive. Equities are falling and so are Indian treasuries due to high inflation expectations.

Gold and silver will be some of the few things worth sinking money into - regardless of price - because the price of leaving their money in falling assets is obviously even higher. It only gets more and more expensive as time moves on.

Gold is rising even without India's traditional buying levels of approximately three times what they are now. The Indian gold train is moving and pulling out of the station. The more speed it gathers, the harder it will be to jump back on.

Hesitating any longer will be more expensive than gold could ever hope to be. In fact, logic would dictate that the more expensive gold gets, the more it will cost those who decide to wait before they buy it - in terms of lost profits. The same thing goes for all investors, of course, not only Indians.

Vietnamese have been the largest gold importers in Q1 of this year – and that's in absolute terms, not per capita!
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Guess why infrastructure stocks zoomed today:

Merrill Lynch & Co. Inc. ( MER ) has raised its annual infrastructure-spending estimate for emerging markets by 80%, as developing countries try to keep pace with fast-growing economies and large cash reserves, BusinessWeek reported.

Investment in infrastructure, which the firm sees as the long-term solution to inflation, will rise from $1.25 trillion to $2.25 trillion annually over the next three years. And China, the Middle East, and Russia will account for 70% of infrastructure spending.

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Ridham Desai, MD and Co-Head Equity, Morgan Stanley, said the markets have made lower tops and bottoms, which confirms that we are definitely in a bear market. "Price damage is the first indicator. Fundamentals have also given way. The bottom may lie around 10,500. So, the markets are likely to se more downside for the next six months."

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Who a few years ago would have thought Fannie May and Freddie Mac would lose 70+% and 80+% of their market value?

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Sometimes your worst fears come back to bite you in the rear. Case in point: In the New York Times, on October 14, 2001 the managing director of an oil consulting firm warned: "If Ben Leden takes over and becomes king of Saudi Arabia, he'd turn off the tap ... he wants oil to be $144 a barrel."

At the time, oil traded at $23, and $144 a barrel seemed downright impossible. Well, terror mastermind Osma Ben Leden, safe in his undisclosed rat hole, must be grinning like a Cheshire cat, because last week oil soared past $144 a barrel.

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