The Greek PM was forced to leave his chair by his wayward countrymen who did not like to pay a price for having defaulted on national debt.

Out of the PIGS (Portugal, Italy, Greece and Spain) one of them has succumbed. Will others follow? At the point of writing, Italy seems to be next in the queue. When that happens, it could have a domino effect and lead to the breakdown of the Euro as a currency. The better off nations in the Euro, like Germany and France have to face austerity as they struggle to support their wayward Euro cousins.
This is fear. What it means for India is a sure slowdown in economic growth. Further weakening of the rupee could happen. As the Euro loses its position as an alternate to the US dollar, the US dollar will emerge much stronger. For those desperate for an alternate to the US dollar, the avenue left would be to invest in Gold and perhaps other precious metals.
To cut a long story short, as the Euro crisis unfolds, global growth will definitely slow down. Trade would shrink and fear will rule the money markets. Emerging markets will look riskier. And money will rush to US dollar government securities, gold and/or other precious metals.
Let us look at the consequences it will have for us in terms of looking at investment options.
Equities suddenly look shaky. At current levels of around 17,000 on the Sensex, our markets are perhaps amongst the most expensive in the world. The superior growth argument is no longer valid as companies will find it difficult to post earnings growth. Companies with export income will witness trouble growing their exports profitably, as most parts of the world take austerity measures to see them through the crisis, which is kind of fuelling on itself now.
We are already seeing the beginnings of a slowdown. Capital markets are not helping raise new money, showing a reluctance to put money at risk. More companies are issuing debt paper at progressively higher interest rates as investor fatigue is being fought by fear of risk and a preference to keep money intact.
Lots of interesting stocks in the US and some markets look very tempting, offering dividend yields that are in the range of five to six per cent. Our markets are still way too high and offer extremely poor dividend yields.
With so much despair and gloom, I am willing to take a call on equities, now. Most domestically oriented businesses are doing well. Most Indian companies have reasonably healthy balance sheets and consumer spending is still strong. Our GDP growth has weakened from near nine per cent to somewhere closer to or lower than eight per cent. This is still high profit growth, if we factor in our inflation. If inflation is 10 and economic growth is five per cent, then profit growth for India Inc ought to be more than fifteen per cent.
I would argue that our markets have some downside left, but not much. I will not be surprised if the markets go down by another twenty per cent or so. One thing that is clear is that unless there are technical reasons, our markets will neither crash nor run away too much. This is a great time to search patiently and buy shares of companies we like for business reasons and not to buy stocks because they will go up tomorrow.
Christmas time is near. I would start to short list companies I like. Against each one, I will put a price at which I am happy buying them. I will go for companies that are significantly mature and tap the domestic consumer for selling products. I will also look at the balance sheet to focus on those with low debt. I will look for ‘relatively’ clean management, which has consistently delivered Return on Equity of at least 20 per cent. If I were to assume a continuing growth of 15 per cent in sales and profits that would be perfect. Then I will wait.
What if the price does not come? Then, perhaps, I will be better off staying in a liquid fund or with bank or company fixed deposits that can give 10 to 12 per cent returns over five or 10 years. The positive thing about stock market crashes is that they give a real chance to buy businesses rather than trade in prices. So, if you are a genuine investor, best to pray for a weak market.

(The writer is an independent investment analyst)