The Anatomy of the market crash!

"Fed has given cover again."

Well, it was anticipated. Ben Bernanke did his best! But US is still on the 'Recession line': Markets falling heavily. The causes ? Manifold:

Fed's emergency surprised rate cut to cool the crying market was both welcomed yet remains an issue of much debate. It's like bailing out the troubled one's each time they got into one. But how long can the Fed really cushion the crumbling economy that foretells recession every moment? Asian markets were never immune to any such downturns neither did it decouple with the US economy. If there are others factors that triggered the crash and one needs to 'cut' deep into the grave to find the stones that turned the great wall of the Bull.

So what triggered market crash in India? Was it only a subprime? It's true that markets have re-coupled in recent times rather than decoupling-and economies have become much more bonded together. If subprime fall-out was there in US, unwinding of high-leveraged positions and clients failing to meet the margin calls proved to be a catalyst in the market fall in India. And there were those cunning FII's that actually started the sell-off. Well, it’s not the FII's fault nor are they running some charities here. They are to book some profits on their investments and that's all. It's also important to note that how a small sell-off (0.8%) of the total FII investments could trigger a huge crash the ones' we noticed on January 21 and 22nd.

BSE Sensex almost lost almost 30% of its market cap , that's around Rs.75 lakh crore got wiped out of the equity markets in last few trailing sessions. Current market fall eroded investor’s wealth, health and confidence too. Retail investor's suffered most as they could not bear the magnitude of the stock market crashes. Domestic Institutional Investors like MFs, PFs, and Insurance companies may have bought some, but they could not avert the waterfall. And now it seems that those companies raising funds through IPO issues getting dampened since before the crash, many IPO's actually saw huge oversubscriptions, but it might be really difficult for them to get a few times subscriptions behest they need to wait and revise expectations on their valuations. Corporate sector usually raise funds through equities, debts, rights or a combination of all.

A big market crash usually brings with it the wind of bearish telltale, a symptom of an economic slowdown or Banking liquidity crisis, the one we experienced during the last Asian Financial Crisis of 1997. But, considering the strong fundamentals of Indian companies and equally sustained growth story, the Indian economy which has a long way to go, analysts feel long-term investors need not worry about a recession in the US to hamper India's overall growth. Recent data from the RBI show there has been a strong credit demand and good corporate performances across the sector except the software which is down by 33% from last year. Many Indian companies may not imply GAAP procedure, yet it looks like that companies and Banks in India are in better shape than their peer ones in US, since we do not have subprime loan category in our portfolio as yet.

It time to ask: Should the US decouple itself from the emerging markets to avert a major recession? But it's neither acceptable nor desired since Asian economies (exports) are very much dependent on the US: the US consumers on the 'Cheaper imports". Yet US run trade deficits with all the major Asian economies, China being the largest. The debate will continue whether Greenspan's lose monetary policy may have seeded subprime plantations when the interest rate grounded. It is to be remembered that Greenspan actually pulled out the US economy out of the dot.com burst that went havoc.

And for sure, India and other emerging economies should also learn the lessons from the events to avert a ‘prime’ crisis in near future.