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BW Businessworld

Bad News And Bargains

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Almost every investment guide and guru will tell you that the best time to invest in the stock markets is when most of the news coming in is bad. The basic philosophy behind that advice is that when there is gloom and doom about the short-term prospects of the economy, stocks get beaten down to extremely low levels.

In other words, even good stocks become available cheaply because of the overall pessimism prevailing in the air. Any investor bold enough to pick up stocks at this time and hold on till the economic conditions improve will end up becoming rich.

To a large extent, what applies to stocks also applies to most other asset classes — property, commodities, etc. Of course, there are plenty of caveats to the general advice about buying when news is bad. First, you have to make sure that whatever asset you are picking up is fundamentally good. There are plenty of stocks and lots of houses out there that are quite cheap — but still not worth buying.

You also have to make sure that you have the financial capability to hold on till the sentiment improves and prices start going up again.  But if you are a disciplined and rational investor, you will do well by following the strategy.

By all accounts, there is plenty of bad news about the Indian economy — and also the stock markets — currently. The government now expects to end the year with a 7 per cent GDP growth, which is way below the 9 per cent it was predicting at the beginning of the year.

Sales in a host of different markets have slowed. The level of debt for corporate India has been rising. Raising money from abroad has become more difficult. The fiscal situation is deteriorating. The rupee has been on a downward slide. Not many new policies that could attract investment were announced last year.

All these have affected the sentiment in most of our asset classes — especially stocks, but also property and quite a few commodities. The one commodity that has ridden high has been gold.

Senior editor Mahesh Nayak put together this special issue on investing. Most of the experts Mahesh spoke to said that this was the time to start buying — cautiously. You will find their specific recommendations.

(This story was published in Businessworld Issue Dated 23-01-2012)