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India's Third Giant Leap

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Do Investors Have a Way Out of this Chaos?<
Fri, 26 Feb Pre-Open

The global economy is in doldrums. There is widespread uncertainty. Earlier economic forecasts have gone for a toss. The situation we are talking about here is fueled by several factors. China is facing chaos now and then. The US Federal Reserve seems on course to gradually increase interest rates. Oil prices have slumped and global demand remains low.

Back home, banks are hit with the rising NPA levels and their provisioning. Deficient monsoons have hindered economic growth. Domestic demand scenario appears to be weak.

In a recent report on future economic challenges, the International Monetary Fund (IMF) said world growth had slowed and could be derailed by market turbulence, the oil price crash and geopolitical conflicts. It warned that the world economy is highly vulnerable and new mechanisms are required to protect the most vulnerable countries.

This makes us think - Where does Indian stand and how vulnerable is it to global headwinds? The turbulence in the global financial markets and weak global growth have made India’s economic growth prospects vulnerable. The ongoing sell-off in the Indian stock markets is a reflection of it.

In order to come out of the current pessimism and uncertainty, India does need growth-revival policies. We hope our Finance Minister Arun Jaitley pulls out some reform-rabbits from his hat in the upcoming Union Budget 2016-17. In order to reduce the fiscal deficit, the government needs to shut down loss-making public sector enterprises. It should sell the assets these public sector enterprises have been sitting on for many years now. We also need a stronger effort to revive infrastructure growth. Banks need to strengthen their internal control and risk management system for timely detection of NPAs. Moreover, fiscal policy should support economic recovery and focus on reviving the investment cycle in the economy.

For investors, it boils down to one important question. With the upcoming Union Budget, should there be a marked change in the way an investor should go about investing? Well, we don't really think so. You see, making macroeconomic projections and getting the big picture right is one thing. However, to really translate them into profitable stock picking decisions is a different ball game altogether. One shall note that events like the Budget or the one stated earlier are barely a blip in the long term intrinsic value of stocks. And therefore, when markets over-react to such events, the risk-reward equation turns in our favour, making stocks an attractive long term proposition.

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