It seems by mid 2009; Indian Markets will recover from bear market - Don't maintain high cash levels, keep investing at every dip.

Faced with a near collapse of the entire financial system, the US authorities had no choice but to act proactively on a huge scale and abandon the piecemeal institution-specific approach.

1. They asked US Congress to buy up approximately $700 billion worth of toxic paper from financial institutions, so as to clean up their balance sheets. This toxic paper will be housed in an entity similar to the RTC (Resolution Trust Corporation), which was effective in resolving the savings and loan financial crisis in the early 90s.
2. By putting the paper in a new government-funded entity, we give the markets time to catch their breath and figure out what these assets are really worth. Today the forced cycle of de-leveraging, instrument complexity and panic are not allowing rational price setting.

Whether the new measures work will depend on a couple of key issues?

1. At what price will the toxic stuff be taken off the books of the banks? If it is bought at current prices, then we will have a huge hole in the banks’ balance sheets, which will need to be filled. Where will this capital come from? We are talking of capital needs in hundreds of billions of dollars.
2. After the bail-out, what type of new regulatory requirements will be imposed on Wall Street? There is no free lunch, and after bringing the whole system to the verge of collapse, we can expect significant regulatory oversight, higher capital requirements and greater disclosures from Wall Street.
3. Even in the case of the RTC bail-out in the early ’90s, markets bottomed only 12 months after the RTC was set up and the economy took two years to bottom out. While we will definitely get a trading bounce, as the worst case gets priced out, and given the levels of fear and cash, it may be no more then that.
4. India also has unanswered questions. Is the market prepared for the inevitable earnings disappointments? How shall we fare in an environment of reduced global capital flows? If commodities spike, won’t stress on the macro resurface? Election uncertainties loom in the months ahead.