Markets are on the way to recovery!

As the equity markets have fallen 50% in this calendar year, 2009 markets have to be up!

How appealing – and could it be wrong? You bet it can be.

I am a little cramped for data – I have the March ending indices and just ran through it. It is not true at all that a big fall is followed by a big rise. In fact the biggest rise was followed by the biggest fall – 1992 (+267%) was followed by 1993 (-46%). If you want to take heart from past data (ha ha ha you pattern seeker did you forget that the past is a poor indicator of the future) then you will be happy to know that -46% was followed by +65%.

However, a +33% was followed by -27%, -3%, and – 12%!! Did any analyst predict this. God forbid. The equity market has a bad habit of shooting the messanger. So assuming the markets close for March, 09 with a loss of (say) 48% (it will be the highest % age fall in a financial year) will it be followed by a 45% rise (yes there are predictions saying markets will close above 12k for Dec, 09). I hope so. But I am too seasoned to think it will happen because analysts and anchors want it to happen.

I may not sound very optimistic if I say year ended March 2010 will again see consolidation in financial services, salaries rationalization, branch closures, reduction in mutual fund schemes on offer, – but the sensex may be higher than March, 09. Sectors which need tons of cash to keep growing – Insurance, Retail, Aviation, Telecom, are all vulnerable to slowdown. Many reasons cause this – the base effect, the fact that they are all cash draining, the increasing cost of funds – equity and debt, and the wage inflation that the existing incumbents have already created. God bless the shareholders of these companies.

The summary is even if there is growth in the equity market, the financial services business may not be the best place to be in. Like the IT sector, the financial services job may not be the most coveted in the next decade or two.

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