How to face Market Crashes?

Indian stock markets are at the crossroads, after the steep decline of the past two days. But long term investors, who have invested in blue chip stocks have no cause for worry. Indian stock markets have a tendency to do things in a hurry. We were in a hurry to top the 21000 mark on the sensex, and now within a span of 6 trading days we have touched 15000 on the sensex intraday. Day traders or speculators have a cause for worry, but long term investors can use this opportunity to add their favourite stocks to their portfolio. If you are a long term investor, you need to be brave and start buying actively, despite doomsayers predicting lower levels for the markets. Here are some of the reasons for the markets to recover from these levels:

• Fundamentally, the sensex now trades at the 12-month trailing PE ratio of 20.7, and FY09 PE multiple of 16-17, which is quite attractive.
• The medium term downside technical levels have been tested today, and a bounce back is inevitable.
• US Federal reserve has induced a 75 basis points rate cut, which will ease liqudity in the system. The last time when Fed announced a rate cut markets rallied from around 15700 sensex levels, this time they are likely to reverse their downtrend.
• Growth prospects of 9% GDP growth of Indian Economy are intact.

It is to be noted that the fall has been maximum in the so called speculative/ momentum stocks like RNRL, RPL, and many stocks from the Power and Realty sector. Avoid these stocks for investment, because the market will move on fundamentals for the next few sessions.

We should look for a positive turn in the markets from Wednesday 23rd January 2008. But investors should not look for a runaway rise to 20000 sensex levels and beyond.