isnt it time to start picking stocks

Indian stock market has crashed from the levels of 21000 to about 13000

The major reasons for crash cited are:
1. Rising crude Oil.
2. Inflation
3. Interest rates

Now rise in inflation is because of the rise in commodity prices and Commodity prices are rising because transportation and raw material costs are increasing.
Now Raw material costs are rising because the suppliers of raw material cite rising crude prices. And transportaion costs are anyway linked to the crude prices.

Interest rates are rising because RBI wants to contain Inflation. If RBI rises interest rates then the demand for credit will decrease. This decreases the demand for raw materials or finished products. This affects growth but helps to tame inflation.
So In terest rates are linked to Inflation and Inflation is Linked to crude oil.

So the Major Reason for all this stock market crash is:
CRUDE OIL


Now Why is crude oil prices rising ?
There are two possible reasons:
(1) Demand - Supply Gap (i.e. demand is far exceeding supply)
(2) Weakning dollar
(3) Speculation.


Lets analyze this scenario....
Lets take the first case i.e. demand - supply gap
Now Last year at the same time the crude prices were at $73. So within 1 year the prices have doubled. If we go back by another 6 months to a year the cude was around $35-40. So with 2 years the prices have more than quadrapulled. The blame for this is put on the emerging markets like India and China where the demand for petrol is more.
Alright even if we take this arguement on the face value and say that the demand is fueled by emerging markets, it does not explain quadrapulling of the prices. Per capita consumption of petrol/diesel is still very very less in emerging markets compared to the developed countries. So I dont buy this arguement.

The second arguement is weakning dollar. Well its a known fact that the weakning dollar automatically rises the crude oil prices. The dollar has weakened because the central bank seems to be printing money. And to our dismay we seem to be buying dollars like cats and dogs thereby artificfally maintaining the dollar at high levels. This is leading to higher crude prices.
Yes this argument holds some base but does not fully capture the essence of rise in crude from $40 to $146 !!!

The third arguement that Crude oil is traded and is not regulated properly hold some strength. Without substantial increase in demand and not so substantial weekning of dollar, crude still trades at ta very high price. Isn't it because of speculation ???


So,
Main reason for Stock Market is : Crude Oil Rise
And,
Rise in Crude Oil price is because of : Speculation in crude prices.

Now,
As we know speculation is trading in thin air. Some day the speculators decide that they have had enough and start unwinding their positions, crude will definitely drop. Since there is enough supply of crude, the cascading effect would be on Interest Rates and Inflation which would automatically come down....

So,
A fall in crude price will lead to Sanity to a greater degreee in the stock markets.
Now,
As an investor you are supposed to invest in stock markets when everybody is selling in panic. If the reason for panic is not justified then it is all the more pertinent to buy more stocks of fundamentally good companies.

I personally feel that the sentiment is very bad in the market due to rising crude prices which will come down some day. Now this logic is already being factored in by large investors (my personal feeling as whatever I have written above till now is not something which only I can think of !!!! There are enough people with better brains than me out there !!! :) ). So many cherry pickers would have started picking stocks.
Crude might go up again in few days. But I personally feel the impact will be lesser and lesser as the days pass by and one fine day the crude prices will drop. Buying stocks at that point will not make sense.

I feel its time to start looking at stocks of your choice.... I think one should invest in a staggered manner.
(BTW remember Rakesh Jhunjhunwala's will be reviewing his positions in the year 2011-12 :). So this second leg of bull market (when it starts...) should last till 2011-12.)

Happy Investing