Fight pessimism with patience.
Global factors will dominate our markets in the coming weeks. Oil prices have trended down and settled to a soft regime. The currency now becomes the primary concern. Everybody has a view on where the rupee should settle. But, the man who actually knows is playing the cards close to his chest. Raghuram Rajan holds the key to our economic recovery. When he chooses to drop interest rates and how he chooses to manage the rupee hold the key to growth. The macro picture seems a bit frozen right now and waits for the Rajan effect to thaw things up. Investors had avoided large caps as they did not know when the thaw would happen. Instead, investors chose mid-caps which were relatively insulated from the macros and concentrated their investments in that space around such companies. This has led to a lot of froth in the mid-cap space with funds being the major mover of valuations. One can’t blame fund managers. It is the investors who drive them by giving them capital at the wrong time. When we give them too much capital in one segment of the market, we set ourselves up for future trouble. Investors have been going overboard on mid-caps and this has led to a lot of froth in this space. Companies in this space have been coming under severe pressure to meet investor expectations. Several of them have failed to make the cut. This puts the funds in a tough spot. They will now be staring at near term underperformance. This makes the market a playground only for the patient investors. The perseverant ones are sure to profit if their patience outlasts the imminent pessimism.
“It is the part of a wise man to keep himself today for tomorrow and not to venture all his eggs in one basket.” – Miguel de Cervantes.