Read the newspapers, watch any business news channel, go for a social gathering or overhear people talking in a local train , the buzz everywhere is whether it is the right time to invest in equities? The HNIs (High Networth Individuals), Institutional investors as well as retail investors who have lost heavily in the recent market crash are busy timing it, while the ones who have never ventured out in this space are itching to get in with mouth-watering prices of quality stocks. Just that they are too confused and paranoid by the recent turn of events. So when exactly is the right time to invest?? Well, let me make an attempt to solve this million dollar question with the help of a small bed-time story. Wondering how a bed-time story relates to the complicated financial world. Read on:

Recollect the famous hare and tortoise story which every individual must have heard during his childhood days. A hare once ridiculed the tortoise for its slow pace. To set the records straight they decided to have a race. While the hare was swift and flamboyant, the tortoise did have his constraints but was determined to reach his goals. The hare got over-confident with his flare and might and thought he could afford a short nap. The tortoise very well aware of his limitations plodded away with his final goal firmly in his mind. The hare caught napping found out that it was the diligent tortoise and not him who was the ultimate winner.

What I want to indicate by this story is that the people who invest in the market with a short term horizon and with the greed of making a quick buck might look flamboyant like the hare when the market is bullish. But in the long-term the same investor would look foolish. Because, after every bull comes a bear and timing the bear can be the toughest of task for even the best of the market gurus. Such people invest huge sums with the lure of huge returns in the bullish phase but after the market crashes are left with no capital to buy quality stocks at a discounted price.

The tortoise type investor on the other hand is the ultimate gainer in such a scenario, where he invests in small amounts diligently be it a bullish or a bearish phase with a specific goal and time span in mind and insulates himself from the short-term volatility of the market. It is this type of investor who will have the capital to invest in a downturn like this.

But the a downturn could scare even the most diligent of an investor. So let me throw light on some of the history of sensex crashes and the revival amount and time period which could give some confidence to investors, provided you have the capital.

Market Crashes

Years:                              Span                           Top - Bottom             % Decline

1. Feb - 92                          13 months                                 Top-4547                          57%
Apr - 93                                                                            Bottom-1980

2. Sep - 94                          16 months                                 Top - 4643                        40%
Jan - 96                                                                             Bottom - 2820

3. Sep - 97                          14 months                                 Top - 4605                        41%
Nov - 98                                                                           Bottom - 2741

4. Feb - 2000                     20 months                                  Top - 6150                        58%
Sept - 2001                                                                       Bottom - 2595
Average of these is a decline of 49% in 16 months.
Compare this with the recent market crash:

5. Jan - 2008                     10 months Top - 21207                      64%
Oct - 2008                                                                        Bottom - 7697

Sounds scary right?? You would be thinking only a fool would invest in such a market crash. As I said after every bear comes a bull, so lets see how these markets have recovered.

Market Recovery:

Year:                             Span                              Bottom-Top             % Appreciation

1. Apr - 93                        17 months                                Bottom - 1980                    135%
Sep - 94                                                                         Top - 4643

2. Jan - 96                        20 months                                 Bottom - 2820                    64%
Sep - 97                                                                         Top - 4605

3. Nov - 98                      15 months                                 Bottom - 2741                   125%
Feb - 2000                                                                     Top - 6150

Average appreciation of 108% in 17 months.

Now considering the enormity of this market crash let us assume that the time frame of recovery would be a little long. Inspite of that which asset class is going to give you that kind of appreciation?

So as every bed-time story has a moral, the moral of this story would be invest regularly with specific goals in mind. Investing small amounts regularly through SIP’s , mutual funds or by yourself if you are well read about the markets would be the best strategy to adopt in such a scenario if you want to earn decent returns insulated from unexpected crashes. Investing regularly also gives the advantage of averaging of the Rupee. So the final verdict would be to not lose this golden opportunity, as Diwali has come early this year and go shopping for fundamentally strong stocks as there is a grand sale going on at the Dalal street.

“Defaulter” is a dreaded tag for both the lender and the borrower. Who are the people who default on loans? Why do they take a loan if they can’t afford to repay? How do they get a loan in the first place?

A defaulter can be a salaried or self-employed, middle class individual. Or, a high end customer with residences and offices in prime localities. (There are ample reports to prove this!) Defaulters could belong to any segment of society.

Could it be that defaulters just dupe banks if the outstanding runs into a few lakhs? Well, it could just as well be just a few thousands. Or it could be money taken to buy a new car or a personal loan to invest in a business. The borrower may just choose not to pay.

There could be a few genuine reasons for which a borrower may not be able to repay a loan, momentarily, or at all.

The current market crash and the resulting economic slow down have cost many people their jobs. Deprived of the means to repay, these people may not be able to pay off the loan.

Another reason could be unsound medical condition or ill-health. If an individual is confined to bed for a period of time for medical reasons. Or, is impaired temporarily or forever.

Yet, another could be divorce. It’s common to take a joint loan with a spouse to increase the loan eligibility. And then, one fine day (!), the marriage busts. A study suggests that 11 out of 1, 000 marriages end up in divorce in India. If the separated partner does not have sufficient means, the loan could end up as a default.

And here is something interesting. You can default intentionally too! Yes, despite stringent lending norms, there are borrowers who default intentionally. Here’s how:

Fudging identities and forging documents
A newspaper report talks about Mandeep Singh from Panchkula who applied for a loan of Rs seven lakh for buying a Mahindra Scorpio. Posing as car tool-kits trader, he got the loan. He submitted a photocopy of his PAN card and an income tax return of some town in Himachal Pradesh. It was difficult for verification agency to clearly ascertain the claims. After repaying a couple of installments, it was found that the borrower was a fraud and was untraceable. All the submitted documents were fake.
Another common instance of forgery is that of a bank statement. It has been seen that potential borrowers shows a high account balance till the time the loan is through. Once done, he withdraws the amount. Salary statements and addresses seem to be on the top of the list of forgeries.

Organised rackets
If you have some hands-on experience with dealing in bank loans either as verification or sales agent of loans or credit card sales through telemarketing, you may find the ‘Mr Hyde’ side of your personality planning sinister stuff. All you will need is a set of original documents (anyone’s). Don’t ever trust your friends or an agent so much that you hand over your original documents and forget about them. These documents could be misused.