Should you invest in stock market now?

This is part 2 of the article: Should you invest in Infosys now?- 1. Please read the first part before continuing with this one.

They say that they are looking at other locations and clients and are dealing in other currencies like Euro, still the sharp decline is not justified. If other currencies are stable, why is it that the stock prices are hammered to such a level. If it is due to dollar forex rate weakening, then why a 10-12% decline in dollar translating into 33% decline in stock price of a company that was supposed to be called the future of India.

Then comes the hedging part: Hedging against forex currency price fluctuations. You expect to receive 1 million dollar in 3 months time. The present price of dollar rupee forex rate is 40. Can you find a bank or a counterparty which can give you a forex rate of 44 in 3 months time? Can a counterparty be stupid enough to get into a futures contract that gives you a 10% hike in the future price as compared to the current price of 39-40?

The fact is that in the last few quarters, there was a lot of ambiguity about the dollar rupee value. It was expected that US economy will not go into recession, it was expected that the subprime mortgage crisis will be overcome, it was expected that dollar will again go back to its 43-45 levels, if not, then it was expected that RBI would make policy changes to keep the dollar-Re forex currency exchange rate to be sufficient enough. Hence, there were some banks and counterparties which were of the view that they will benefit from the dollar increase. Unfortunately, it did not happen. Things went from bad to worse.

However, in the speculation process, the IT companies managed to find the counterparties or banks for their future contracts, so as to hedge their positions at high future prices. Unfortunately, the same counterparties and banks have now arisen to the real situation. They are now observing that the dollar is no way going to go up and the currency trading rate may not increase further.

Now this is forcing the IT companies to get into the futures contract with lower future prices. The simple reason is that there are no counterparties willing to offer higher future prices. Hence, no hedging with high future prices and overall, the IT stocks are being hit.

Now comes the big question. In this situation, where are IT stocks are at the lowest of the lows, should you buy them?

They hedge, they diversify, they spread their client base to different currencies and different geographical locations – yet they are being hammered, mercilessly. Has Infosys lost its so called FUNDAMENTALS? Is it now operating on a different model? Has it now changed its attitude towards clients and changed its core values? No, nothing has changed fundamentally. Yet the stock price is sinking. Ask an investor who may have bought Infosys at 2200 levels. What is he upto now?

Irrespective of the risk you can take, irrespective of the fact that you are willing to loose your entire capital in the stock market trading, the market has its own language, direction and performance. The direction is RANDOM. If anyone can identify a pattern in the market WITH CERTAINTY, he should keep quiet and keep making money silently for himself.

The world is becoming more and more interdependent. What happens in one remote part of the world affects the entire globe. Let the analysts say what they wish. Let the markets trade the way they want. You must take the decision and you must know how to make the calculations. At the time of writing this sentence, the market has fallen further 12.5% to the levels of 4500. The trading has been suspended – let’s hope things come to normalcy in a few trading sessions. It is the perfect time to buy ETFs. Traders like Andy willing to beat the bank rate can give a trading shot by buying at these levels. All the best

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