Volatility
A euphemism for people losing hard earned money in the stock market. As I am writing this article the BSE and NSE are tumbling down from dizzying heights. It is the time investors feel that they should have booked their profits earlier and come out of the stock market. Others like me tell themselves that it is all like a wave and we are just experiencing a trough. So what made me write this article?? Probably the thousands I lost.
The fall has been attributed to a number of reasons. One of them being the fear about rising inflation rates in the US. Indian inflation rate has hovered around 5% for some time. The US rate which was much lesser before is also feared to approach the Indian rate panicking investors all around the world.
The fall has also been attributed to slow global economic progress. Although countries like India and China have impressive GDPs of about 8% and 10% respectively, the global GDP has been an abysmal 4.5%. Also the developing countries stock markets have shown a general decline in the past week with the Indian market falling steeply.
As happens with any global phenomenon, it is natural to place the blame on global oil prices. The economics behind world oil prices is interesting. The OPEC (Organization of the Petroleum Exporting Countries) controls about 67% of the world oil reserves and hence dictates world oil prices. Whenever it wants to raise prices, it just reduces production. Also the producers never try to reduce the prices as it directly encourages consumption which in turn leads to global warming. Now Venezuela is coming forward as a major source of oil due to high oil prices. The quality of oil in Venezuela is low grade and costs a lot to be made usable. But the high prices now make it possible allowing Venezuela to produce oil. Also one interesting fact is that in India from the time I have started driving two wheelers a litre of petrol cost 20Rs then in 1990’s and now it is around Rs50 in 2006. But amazingly the US gas price has been ranging from $1.91 to $2.68 per gallon(3.8 litres) for the past fifty years. The lowest oil price is in Venezuela costing about 0.12$ per gallon. The US with its gas guzzling SUV’s is the largest consumer of world oil but has done little to reduce dependence on oil. Instead it has only tried to secure its supply by constructing Strategic Petroleum Reserves which are nothing but underground salt caverns which can hold large amount of oil. Their reserves can help them hold out for sixty days in case of any crisis.










SPR at Bryan Mound, Texas


The initial stock market fall can also be attributed to the left grasping power in West Bengal and Kerala, thus causing the foreign investors to worry and pull out ( fall of 500 points in a day in sensex) which further created a domino effect including the mutual funds to pull out(A fall of eight hundred points in the sensex). Last comes the retail investor who pulled out in order to reduce his losses. But still I stay invested. Why???? I think it must be because I often show high risk behavior in the market and I believe that any one’s risk appetite is inversely proportional to their age.
For anyone wishing to become part of Dalal street, I think that this is the best time to enter. As even all blue chips are priced at a discount, it is a good time for investors to enter the market. But alas I have no more cash to pump in. (My bank balance now is about 1000 against a minimum balance of 5000).
The Indian growth story will continue and I firmly believe that inspite of these corrections, the sensex will surge ahead and outperform expectations. So my kind advice would be to stay invested and to increase your portfolios.
For those interested to enter the market now,my recommends would be
1. Infosys technologies
2. Reliance capital
3. ITC
4. Pantaloon retail
5. ONGC