Only when the tide goes out do you discover who's been swimming naked - warren buffett
It is diffcult to avoid reading on the subprime mess in the US. I have an oversimplified explaination –
'Losses being incurred by individual and institutions for overpaying for financial assets like CDO, MBS (mortage backed security) and other debt due to greed (for higher yields), ignorance (not knowing what was behind these assets) and overconfidence (too much faith on models)'. So what we are seeing is repricing (or correct pricing ?) of these assets.
Well for a much better understanding on what is happening and what may happen in the months to follow , read this article on fortune.
In a nutshell the opinion is that this bubble will take some time to unwind, there could be volatility in the markets due to that and there could be steep losses for some.
I think india is not going to be affected much directly. However we could see second order effects. With a liquidity crunch, it is quite possible that the excess liquidity which is driving our stock and real estate markets may dry up. This could cause some volatility and short term drops. How much and when ? ...who knows. I think the equity markets are already reacting and there maybe be some anecdotal evidence of the same happening in the real estate market too.
If, like me, you have also been tracking some stocks or have surplus cash to invest , the next few months may provide a few good opportunities. For ex: the auto sector, oil and gas and several mid-cap, microcaps are now selling at much lower prices and could soon be great bragains.
The most common cause of low prices is pessimism. We want to do business in such an environment, not because we like pessimism, but because we like the prices it produces. It's optimism that is the enemy of the rational buyer - warren buffett