So the monkey is off! The Silicon Valley bank collapsed in the US and the first major corporation is finally bankrupt post the rate tightening cycle which began at an unprecedented pace in the US and the world last year. Everyone was actually worried as to why no major poster child has yet collapsed and what better than the bank lending to startups in the Silicon Valley. It proves that the era of easy money is over and the hardest hit are the guys who had a free run beginning 2008, the guys running startups without revenue or profits or both.
There will be reverberations in India, ofcourse and our markets have been following the trend on the way down. I’m not sure as to when it will end but this is actually the beginning of the end for now the panic has led to chaos. You can blame me for being too optimistic but that’s how I view the world. So let me make some points in my defence.
The hardest hit by increasing interest rates are the guys who borrowed their way to growth. In India’s case, our listed corporate balance sheets are pretty clean given what happened post IL&FS crisis. Our Banks NPA are already one of the lowest in recent memory and their capital position extremely strong. Banks are also raising CASA deposits fast by offering juicy FD rates to their customers and even the stock market channels are now advising their viewers to park money in the bank. And this is my strongest point. The pessimism mood has given way to irrelevance.
It has been around 1.5years that the market hit its peak in October 2021. After that, even though the indices are down just around 8-10%, portfolios are down well over 20% and people have seen such negative down days that the hope of making a quick buck has died long time back. The Covid traders have gone back to their day jobs and equity markets are being viewed as a dangerous place once again. I know of a novice trader who had it so good that he almost made a million rupees through options trading and felt like king of the jungle. He, ofcourse, gave it all back in a couple of trades and has now gone back to massaging people’s back( he’s a physio).
The office conversation which was about how IEX has made a lot of money in 2021 went to how the market has fallen a lot in 2022 has now given way to “I don’t even know what’s happening in markets” in 2023. And that is the height of skepticism. People now refuse to believe that the market can go up and thus have stopped paying any attention to it. They either have taken their money out at a loss or have certainly vowed to not put in any more.
I personally have seen my portfolio go up 5% and fall ten so many times that even I at times feel if I made a mistake not selling out something when the going was good. So it happens with everyone and now I believe that the tide is turning.
Markets always climb the wall of pessimism and skepticism and eventually they will this time as well. How can a company who owes no debt fail? How on earth does an ITC fail when it has cash reserves of 50000 crores paying higher interest income to itself when the rates are going up!
Remember! It is essential to differentiate between the stock prices and the businesses which you own. This is the test when men will stand out from the boys and I’m sure, we’ll see the sharpest recoveries pretty soon. When everyone has given up on the market, when everyone sells on a rally, when everyone is dead sure this is a dead cat bounce, therein lies the seed of a new Bull Market.
Remember April 2020! Everyone and their uncle knew the market would fall and it is certainly going down to 6000 Nifty. Well, after that bottom of 7500, it was almost a one side run to 18000!
Stay invested, stay bullish.
Life is all about Compounding! 