One question on the top of everybody’s mind is of course “When will the markets recover?”. That is not just a difficult question to answer, but at best is a wild guess. However, the fun of prediction is to occasionally get it right!

The market is a cruel barometer of corporate performance. In the preceding few years, all industries got into excesses and have developed a lot of bad habits. That will change. We have too many mutual funds, too many mutual fund distributors, banks, life insurance companies, etc. who on a stand alone basis are not making money. Their business is structured in such a way that they do not mind the fact that there are no current cash flows. That will change. AIG and Prudential have enough problems back home. They may reconsider pulling out of India. If the Tatas decide to pull out of the life insurance business, there will be one less player. There will surely be some consolidation in the mutual fund business also. In the current structure most mutual funds are making losses. Most of them are stressed. If they do not get any inflows (very difficult to see how this can happen) and the redemptions continue at the same pace at which it is happening, the AUMs will evaporate. So there will be nothing to sell.

Similarly in the life insurance business, there has to be some consolidation. Airline business, Hotel business, luxury tours, etc. are all businesses waiting to consolidate…so watch this space!

So after a few brokerage houses close down, a few banks consolidate, airlines lay off people, hotels reduce rates, employees learn to live with lower pay packages and higher EMIs, …one day the market will recover. But as they say the markets will get worse, much worse, and then better! We do not know when.

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