Financial crisis of 2008 proved to be biggest wealth-making opportunity as Nifty rose four-fold

Ambit Principal Investment

It was in the mid of June 2007, I started my career as a financial analyst in the structured finance department of a leading rating agency in Mumbai. In my job, I was exposed to the intricacies of various structured finance products such as ABS, MBS & CDO, which were major contributors to the subprime crisis.

The year 2007 was also the time when financial markets in India (especially equities) were heating up, with buoyancy in earnings in the corporate sector. Managements used to announce ambitious capex plans and every other day companies across the spectrum were revising their earnings forecasts upwards.

In the next six months, Nifty rose 35 percent to all-time high levels of 6,000 by mid of Jan 2008. And then reality stuck hard.

All of the financial engineerings in the the US coupled with ignorance led to the subprime crisis. “AAA” rated papers were overnight turned into “junk” category.

The liquidity eventually got sucked out and many companies globally filed for bankruptcy. These events had an unprecedented impact on the global financial market, and India was no exception.

From mid-January 2008 to mid September 2008, Nifty lost 35 percent of value. Lehman Brothers filed for bankruptcy on September 15, 2008, and Nifty lost another 25 percent in the next 3 months to 3,000 level by the year-end.

Investors lost fortunes and retail investor face the hard burnt, as India lost 50 percent of market capitalisation in a single year. This was the time when pessimism was the talk of the town.

Companies were finding it difficult to survive, amid macro scenario which was in a dire state. Equity was out of flavor and stocks were available at dirt cheap valuations, as there were no buyers.

The key learning I had during this time was market participants overreact, and this panic situation eventually created opportunities.

It was a challenging time with limited visibility about the future. But, it was also the time to create wealth as most of the companies with respectable moat were available at never heard of cheap valuations.

The long-term emerging story of India was still intact but faced an external jolt. It eventually proved to be the perfect entry point for long-term investors. The Nifty increased four-fold in the following ten years.

This proved to be one of the biggest wealth making opportunity in recent times and an investor with patience and perseverance reaped the benefit.