Dear Investor

During this time of turbulence in the markets, I must congratulate you for taking the wise decision to remain patient. At this time I also wanted to share with you some facts from the history of the markets in India.

It is important for all investors who invest or tend to invest in equities to take a trip down memory lane, particulary during times when the investor feels tired and let down by the market. We need to be aware that this kind of despair is not new in the market but public memory being short, one tends to forget the days of despair.

Let me take some of your precious time to draw your attention to the table below depicting the peaks and bottoms of the Sensex in the recent past. Only the recent past is given here because it is relatively easier to connect to it.


SENSEX HIGH DATE SENSEX LOW DATE
4546 02.04.1992 1980 27.04.1993
4643 12.09.1994 2713 04.12.1996
6150 14.02.2000 2156 03.10.2001
6249 09.01.2004 4227 17.05.2004
12671 11.05.2006 8799 14.06.2006
14723 09.02.2007 12316 16.03.2007
21206 10.01.2008 8701 24.10.2008

I hope that you remember the historic bull phase of early 1990s charging to 4546 points from below 1000 points during the Iraqi invasion of Kuwait, in April 1992. The most interesting development of this period was the amazing growth of investor population in the country and stock investing becoming fashionable for the first time, with new Stock Exchanges mushrooming in every nook and corner of the country. When the hero (or villain?) of the great bull market, Harshad Mehta was caught by the law enforcing agencies, the market collapsed like a pack of cards crushing millions of new investors who had entered the market during the peak time, leaving them in utter agony. The pain was much more than what we are seeing these days. The market mood was incredibly low and many investors along with doomsayers predicted the end of the market and the end of an asset class called equities. As the table shows, in a short span of one year from April 1992 to April 1993, investors found their wealth coming down by more than 55%. Many fortune seekers who borrowed and invested and many others who had invested their life time savings for the marriage of children to retirement life, saw their wealth disappearing in one year’s time. The painful part was that though the index came down by only 55%, many of the shares manipulated by operators came down to zero value. This tragedy occurred at a time when market regulations were weak and SEBI had no effective punitive power.

At some point of time you must have felt disappointed and angry at the way the market has been moving. Now look at the table again. In a matter of seventeen months the very same market bounced back to touch 4643 points. Think of all those who sold in disappointment during April 1993 when the index was at 1980 points! The market went up by more than 100 percent in 17 months! Just have a look at the market peaks alone. The next peak was at 6150 (in 3 years 2 months), the next at 6249 (in 2 years 3 months), then at 12671 (in 2 years), then at 14723 (in 8 months) and then at 21206 points (in 10 months). My intention is not to predict when and to where the Sensex will bounce back in the days to come, but to point out that all those who courageously got into the market in each of the troughs and waited patiently made incredible wealth as the market always peaked above the previous peak.

Now what happened to those who invested during the peak time in each of the market peaks – you know many new investors tend to start investing at the peak – they saw their wealth going down by 40 to 60 percent! Compare this to the wealth of all those who got into the market when the market touched bottom every time! Indeed, it requires courage to invest when every other investor leaves the market.

In this backdrop we must also analyse what is happening in the market that is pulling the Sensex down to 8700 points. Many foreign institutions and hedge funds have become bankrupt in their home countries forcing them to sell Indian assets at throwaway prices pulling our market down. One serious difference is that this time we have a global magnitude to this crash in relation to liquidity.

The one who can invest now, particularly in companies which are sitting with lots of cash in their balance sheet will make extraordinary returns when the dust settles down.

I felt that it is my duty to share with you some facts to enable you to look from a better perspective at the current events. Of course it is difficult to predict market tops and bottoms, but I wish to assure you that this is not the end of equity markets, and it will never be.

Thanking you and with all good wishes for a Happy Diwali,
Yours sincerely,



C J George

It would be intresting to start a new thread - Holding part ownership "equities" in a bear market versus Holding Cash in a Bull Market. It seems lot of us have abondened our original thesis and intent.

Holding cash or putting cash in FD's at this moment is denying oneself opportunity of getting 40-50 % returns over a period of one year.

State banks to get deposit largesse from govt firms

Sudheer Pal Singh & Rakteem Katakey / New Delhi October 30, 2008, 0:59 IST

State-owned commercial banks are expected to garner at least Rs 20,000 crore of additional bulk-deposits from public sector enterprises following an advisory from the finance ministry that government-owned companies should park their surplus cash with state-controlled banks.

These public sector enterprises hold between 10 and 40 per cent of their cash with private banks. This development comes at a time when a few private sector banks are not accepting bulk deposits which typically attract high interest.

The 45 listed public sector firms alone have cash and bank deposits of Rs 1,13,500 crore as of March 2008, according to Capitaline data. This excludes unlisted entities like state-owned telecom major BSNL Ltd, Coal India Ltd and Oil India Ltd.

The amount of Rs 20,000 crore was arrived after talking to six companies that collectively account for nearly 75 per cent of total deposits of listed state-owned firms and are planning to move between 10 per cent and 40 per cent of their desposits to public sector banks.

At present, officials of state-run companies say private banks offer interest that is two percentage points higher than the public sector banks offer. Thus, a shift of Rs 20,000 crore away from private banks would mean that the state-run companies will lose at least Rs 400 crore on an annualised basis.

Oil and Natural Gas Corporation (ONGC), India’s largest oil producer and the highest profit-making public sector company, has decided to transfer its entire Rs 25,000 crore of deposits to State Bank of India, ONGC’s largest banker.

“Our board has decided that the entire deposits will now be with State Bank,” confirmed a senior ONGC official.

The oil producer has around 15 per cent of its deposits in private sector banks.

“Deposits with the private banks have come down in the last month,” admitted a SAIL official, but did not specify how much. SAIL banks mainly with Bangalore-headquartered Canara Bank. The steel maker, with the third-largest cash balance among the listed state-run firms, had around 15 per cent of its deposits with private sector banks at the end of September 2008.
 

CASH-RICH PUBLIC SECTOR COMPANIES
Cash and bank balance*           Rs Crores
ONGC	25055.85
NTPC	15360.50
SAIL	13933.08
BHEL	8386.02
NMDC	7198.80
MMTC	6022.29
Neyveli Lignite	4749.56
GAIL	4632.06
National Aluminium	3516.46
MTNL	3383.32
Bharat Electronics	2461.55
Shipping Corp	2091.20
Power Grid Corpor	1865.59

CASH-RICH PUBLIC SECTOR COMPANIES
Cash and bank balance            Rs Crores
IDFC	1808.07
BPCL	1588.92
Container Corp	1522.57
Engineers India	1270.29
Rural Electrifications Corpor	1255.69
Indian Oil Corp	1060.22
Ircon International	940.28
HPCL	793.39
Power Finance	694.67
STC India	550.70
Hindustan Copper	528.84
BEML	521.10
(figures in Rs crore)* Latest             Source: Capitaline

The finance ministry advisory came a month ago. The ministry had also said the companies cannot call for competitive bidding on interest rates and will have to make deposits with the bank with which they have had prior banking experience.

A couple of months ago ONGC called for interest rate quotations on Rs 1,000 crore it wanted to deposit. Indian Oil Corporation, which is going through a liquidity crisis, quoted more than banks and took the deposits by agreeing to pay interest at over 11 per cent.

The move by the finance ministry comes at a time when the country’s banking system is facing a liquidity crisis with credit to firms drying up. The government has been trying to raise cash with banks which will help them lend to companies.

“With public sector companies depositing primarily with state-owned banks the government will get a freer hand in asking the banks to lend. But this affects the interest earnings of the public sector companies,” said a Mumbai-based analyst.

A senior official of Powergrid Corporation of India Ltd (PGCIL), India’s largest power transmission utility, agreed that the finance ministry circular will result in two percentage points drop in interest earned on deposits. At present, PGCIL has 60 per cent of its cash surplus with public sector banks and most of their deposits have a shorter tenure of 30-90 days.

However Coal India Ltd said they already comply with finance ministry directive and plan not to shift the deposits, said Partha S Bhattacharyya, chairman of Coal India.

Coal India, which is not yet listed in stock exchanges, along with subsidiaries have a total deposits of Rs 17,000 crore, with three-fourth deposited with public sector banks. Internally, the company has put a cap of 25 per cent on deposits with private banks.

Source : Business Standard.com

Edited by Mohan - 29/Oct/2008 at 10:36am