Expectations head for a reset
Predicting a crash in any asset class is a dangerous business. To the one making the prediction, the odds are inevitably stacked against the act. If you go wrong, everybody on the other side of the divide will pounce on your credibility. If you are right, there will be so few people taking cognizance. The reason – most people will be affected and too preoccupied with their own hurt to even notice your conviction come right. India’s impending real estate crash is going to be the last nail in their sentiment coffin. While I say that, I concede there remain believers in real estate even at these levels. There still are many people who want to believe something no matter how strong all other evidences stack up. When you don’t know the difference between belief and prayer, you have only yourself to blame.
When the liquidity tap shuts, one or more bubbles will be busted.
The results season will see investors revisiting their earnings expectations. It is certain that investors will revise expectations downwards in the light of slowing growth. The first few results will set the tone for earnings downgrades and one can easily imagine how the markets will react to this trend. The good thing is that the market already expects to hear bad news on the earnings front. That should mean that there would be a limitation of the surprise element. But, it will be interesting to see the trajectory of stock prices as the results season progresses. With expectations running low, there is scope for positive surprises at least from a few blue chip companies in the index. That will set the market direction for the near term.
To profit from the next rally, learn not to wait for the previous bottom