Equity Markets: Good News & Bad News

I think the recession is coming to an end. Most global stock indices have rallied over 20% since bottoming out in early March. Stock markets are leading indicators of the economy and they rally well before we get confirmation that the recession is indeed over. Similarly, the markets had started dropping well before we knew we were in a recession.

Among the BRIC (Brazil, Russia, India and China) nations, the Indian markets are the best performers with India's BSE Sensex Index clocking over a 40% gain since the early March low! Many of the blue chip stocks such as ICICI Bank and Tata Motors have more than doubled. I'm very pleased to have made some very significant investments in Indian equities when the markets were dropping like a rock.

The good news is that the recession is coming to an end; the bad news is that the market has already bottomed (in early March). So, all those investors who had been waiting for the market to bottom to start purchasing stocks - the market has already bottomed.

Having said that, I don't think it is too late to make long-term investments. Since the market has had a good rally, I wouldn't be surprised to see a small correction soon, and that, I think, will be a prudent time to make long-term investments by all those who had been waiting for the market to bottom.

If an investor keeps in mind that it is impossible to buy at the absolute bottom and sell at the absolute top, then I think (s)he will do well in the long-term. This is my Golden Rule, which I try to follow.

Please take the poll on the left-hand side of this page and vote 'yes' if you think the market has already bottomed, and 'no' otherwise.