In the last 13-14 years, that I have been observing and participating in the markets, I cannot recollect a time where market sentiment was so negative. It was not this bad (atleast in India) in 2000, nor in 2008. Before, there was always a ray of hope, of optimism, that India was doing fine and the market problems were "imported". Once the external problems sorted itself out, Indian markets would go back up. This time I don't see any hope, no optimism at all amongst market participants. Because the problems are within. The problems are self-created and cannot be wished away.
When I speak to my friends who run their own businesses, they say thing s are terrible on the ground. There are just no orders. Inquiries have come down drastically. At the macro level also, the problems are all well documented - very high current account deficit, a central government hell bent on killing the economy by rocketing the fiscal deficit by harebrained welfare schemes like the food security bill. Rupee getting killed vis-a-vis the dollar with the RBI not having enough resources (either through reserves or policy initiatives) to be able to defend the currency, systemic policy inaction and flip-flops so that no one in their sane minds would want to invest in India.
Look at the way the RBI and Finance Ministry is behaving. It is very evident that they are a scared lot and have no clue as to what to do. Chidambaram is giving statements everyday to try to soothe the ruffled nerves of investors. But, it is not working. Simply because investors have lost trust on the effectiveness of the government to deliver on results. What is needed is decisive action, which sadly is missing. What we are getting instead is minor tinkering with FDI policy here and there. None of it is going to make any substantial difference anyway.
Jim Rogers in a recent interview said very candidly that there is nothing good in India (other than being a terrific tourist destination). The fact that he is short on an India ETF proves that atleast he puts his money where his mouth is.
I am beginning to get worried. A lot. I am worried that the era of 7-8% GDP growth was an aberration for India and is now gone forever. We are back to the 3-4% growth rates of the post-colonial license raj era. How long is it before the Indian economy stabilizes or will it ever go back up to 8% GDP growth levels? I don't know. What I fear is that we may be getting into a negative spiral of mediocrity and low-to-no-growth era for the many many years to come.
So,what does all this mean for investments? Specially in equities? I think, its time to take a long, hard look at the stocks in our portfolios. Keep those that can survive in a very difficult environment; which have low or no debt on their balance sheet; preferably have a large component of earnings coming from outside India. And most importantly, moderate expectations. Don't expect more that 10-12% growth. If you do get better, great. But don't count on it. Wait this period out. Maybe in hind sight, you would have missed a great buying opportunity, but it is better to be prudent and give off the first 10-20% of the up move (if it comes) to the really brave. Keep you ears to the ground and see if actual business sentiment is improving. Only then take a plunge.
Disclosure: I am an interested market participant. All views are personal. I reserve the right to be wrong!! I also reserve the right to change my mind anytime!! So, please do your due diligence before investing.
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