When will the stock market bottom out?

At last the crash I had been waiting for such a long time seems to be here. I must admit the market remained irrational for longer time then I expected. But then it’s impossible to exactly time the market. By fundamental analysis you can just say what is logical and what is not. And now readers of my blog will admit that all I said is coming true.
Still doubt my capabilities? Lets have a bet on what would be the extent of correction of when can we say that the market has bottomed out. Game??
My bet is - the stock market will bottom out only after there is a steep correction in the real estate market. By steep I mean 40 – 50% correction!! We will see builders defaulting on loans and banks taking over projects. We will see few builders defaulting on their project commitment and customers running from pillar to post to protect their savings. We may see a couple of suicide or crime related to property prices crash.
People say analysts are generally not specific with their recommendations so that they have an escape route later. Well I will get as specific as possible. Running rate in Bandra East is Rs.12000 – 15000 per sqft and in Goregaon East is Rs. 8000 – 10000 sqft. Wewill see prices in Banda East falling to region of 6000-7500 per sqft and in Goregaon East to 4000-5000 per sqft. My bet is correction would be around 50% in these areas. And these are the prime areas – areas like Kharghar, other parts of Navi Mumbai will see steeper correction. People will realize that Airport, SEZ and Sea-link story are too far in future to price in today.
Logic: The logic behind it is simple. Cost of factors of production – Land, labor & capital has today become so high that most of the projects are intrinsically unviable. Specifically land.
The sunrise industry of this boom of 2005-2008 was – Real Estate & Retail, Airlines, Power and Financial Sector. Retail is already in losses. People are putting in more and more money in hope of future profits; same is the case with Airlines. 3 or 4 with deep pockets will survive rest will sell out or die. In real estate I have already mentioned that it’s all set for sharp correction. In power sector most of the upcoming projects have been based on fossil fuels. It’s a grave mistake and we will soon realize it. Financial sector has already seen correction world-wide and effects will be felt in India soon.
If the best earning guys take the maximum loan to finance their expenditure rather than investments the economy is in trouble and that what happened to India due to the consumerism rush. (note: car and house is expenditure and not investment). Salary corrections, job stagnation, no-bonus announcements will lead to lower future earning expectations and hence loan taking capacity. Added to this looses in the stock market and real estate market will make the customers/investors much more reasonable and cautious.
People say – India Story is intact. I too believe in India story but for that Indians need to invest & work hard not speculate. Last two years earning money had been so easy that people and started resisting working in their regular business with 12-15% return. It was a common belief that it’s better to put the money in stock market or real estate and earn 40-50% return per annum. Everybody can see the result now.
India story has been spoiled by our Mr. Bubble maker – Mr. P Chidambaram. Things which lead to current state are:
Zero capital gain tax: By having zero capital gain tax on long term capital gain from stock market Chidambaram forced common hard working people to ignore their jobs and businesses and rather speculate in stock market.
Forcing Indian Financial Institutions to invest in market to support prices: Not only he made these FIs weak he also created bubble in the market by not allowing periodic corrections
Tax benefits on house purchase and high income tax rate: High tax rates and rebate on house purchase forced people in their twenties to take up 20 year housing loan. A recipe for disaster.
Farm loan waver: Not only it added to fiscal deficit & made the banks weak it created moral hazard. Farmers and other borrowers will always look for waivers rather than paying up in time. Oil Bonds and fraudulent accounting practice: On the one hand he promised to keep fiscal deficit low and on the other hand “off-balance sheet” he dole out oil subsidy in form of oil bonds. Oil price is a difficult problem. But he should not be using such fraudulent accounting practice.
If you see all the 5 points above are clear case of living for today and spoiling the future. India Story can’t remain intact with such fools in power. (I had mentioned these points in my blog several time in the past, I hope in the changed scenario I am making more sense).
There have been other party spoilers like Anil Ambani, Real Estate players and these I-banks for the valuation game they played. But at the end of the day the rule is – “Caveat Emptor” – ‘Let the buyer beware’. It’s only we customers are to blame for falling in their trap and not looking at the fundamentals.
So, willing to take the bet? Tell me when you think the market will bottom out. My bet is after there is correction of around 40% in real estate market.

PS: Bottom out doesnot mean that market will see a ‘V’ shape bounce back after that. It would be ‘U’ shaped. It might take few years to go back to mount 21K again.