When people stop spending, it is a sign of fear. When people stop investing, that too is a sign of fear. The signs of fear seemed to be spreading fast and the government knew it well. Debating whether there is a basis for such fear may not ease the situation much.
To reduce persistent fear, we need to see green shoots in the economy or clear policy signals. The government clearly saw the writing on the wall. It could not give away much by way of taxes. But, it still needed to signal. The government has tried to be seen as giving, while at the same time giving away only what will benefit the spenders, the consumers, and the investors.
There has been a clever targeting of the constituency. The hope is that people will be convinced to rethink, review fears, and return to spending. The key to its success is the follow-through action, the emerging global market sentiment, and global fund flows.
But, for domestic investors, the belief is that the road to normalcy has been cleared. While the journey back to good times may be long, the opportunity to invest looks very attractive for domestic investors. This is a chance to load up sectors that are beaten down on sentiment and to ride on the path to mean reversion.
