What’s our market view?
We will try and be brave to start the market view on a positive note by re-iterating the cliched chant – ‘in fear lies opportunity’. After the sharp market rally in early part of the year, equity markets have resolutely drifted down. The concerns that have led to this are exactly the same (we am not even using the word similar) that were prevalent in 2011 – the policy paralysis, the probability of a European debt default, inflation, high commodity prices and India’s burgeoning fiscal and current account deficit leading to currency depreciation. It is becoming increasing clearer that liquidity was the primary driver of the rally in Jan-Feb.
It’s only natural to be overly worried in bad times and overly optimistic in good times. This is the primary reason that most investors have experienced unsatisfactory returns from equity markets. One can borrow some courage from Warren Buffet or Charlie Munger or even Rakesh Jhunjunwala who have had a common underlying principal – whatever the market or country does, strong companies will grow and prosper and reward its shareholders. Only pre-condition is that you have to buy and stay invested. Remember that your father made great returns in real estate or gold on because they have been invested in it for years. And lastly, remember that best bargains are available in most distressed times.
So this memo won’t be too focused on the problems that beset India and the rest of world. For the interest of those who like to indulge in macro worrying, here is my view on it – It’s really unclear how the Indian Government will get its act together, how the coal problem will be sorted or how the inflation will be tamed. Also, in the event of a full-blown Europe crisis, FIIs will surely pull money out of India and markets and currency WILL fall further. Most likely, this will lead to a global correction in commodity prices and demand destruction – we are already seeing some signs of that and both these things are long term positive for a country like India, which is largely a domestic economy with large import reliance. It will also be the time when investors will get bargains and can add further good long term stocks.
Which sectors/ themes do we like?
Caution: As mentioned in our previous memo, one must stay away from infrastructure, capital goods, real estate and power even though the price correction has been severe. These companies have low visibility in terms of revenue and project execution. Banks can be bought in small quantities at current levels, especially private sector banks. However, we may elaborate on them once there is better visibility on the asset quality front.
P.S: Equity as an asset class in extremely rewarding in the long term, however only individuals who can bear interim volatility should invest in stocks. Kindly consult your investment advisor before acting on advice provided here.