Global Recession: How to cope with it

Economic recession is defined as: "a significant decline in the economic activity across the economy, lasting more than a few months, resulting in negative real GDP growth, fall in personal income, employment, industrial production, and wholesale-retail sales." In macroeconomics, a recession is a decline in a country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. IMF regards periods when global growth is less than 3% to be global recessions. The latest World Bank report has estimated that Global economy will grow by 2.5% in 2008, and the growth is likely to fall to a mere 0.9% in 2009. Going by this definition global economy is in the grip of a serious recession led by the largest economy USA which accounts for around 25% of World's GDP.

Economists and Central Banks across the world are grappling with the situation by cutting rates across the board, cutting taxes to spur investment and consumption. Although Indian economy is not in the grip of a recession, but a severe economic slowdown is feared due to the world economic crises. Recessionary conditions are often preceeded by stock market meltdowns and fall in real estate prices. India is also witnessing these depressing signals. But given its strong growth during the past 3 years and the fact that Indian economy is not an export driven economy, it is likely to bounce back to the normal growth trajectory ahead of the developed world and even China. But this may take atleast 6 months if not more.

Investors, who have seen their net worth/ investment erode rapidly in the recent past, are a worried lot. How can we cope up with this turbulent phase in the stock market? The volatility in the market has gone up substantially, and the daily movements are sometimes baffling the investors. The current uptrend in the markets has come as a pleasant surprise to many, especially after the Mumbai terror attacks. The Indian indeces are probably trying to catch up with the global indeces: India has been one of the worst performing global markets since November 21, 2008. There is still some steam left in the current upmove. It would be prudent to book partial profits/ losses if the market goes up by another 8-10% in the next few days. This cash may be kept safe to be re-invested in the next downturn. Negative news from the US could catch up with the markets soon. The slowdown in IIP numbers back home may also spell doom for the markets in India. If the markets are able to stay above the previous lows (2250 on the Nifty and 7600 on the Sensex), then we could see the end of this long Bear phase. Till then keep your fingers crossed.