India’s transition from a crony capitalist regime to a market driven one seems to be a never ending one. First, we dismantled the old licensing regime with great difficulty in the nineties. But, licensing made a swift comeback in sunrise sectors like power, telecom and infrastructure, albeit through the back door. Now, we are going through the pain of finding a market mechanism that will replace the existing nepotistic structure. The hard truth that National assets where sold cheap to a select few will be difficult to politically handle and the handlers will face the electoral heat. In the middle of this turbulence, the government hopes to push through FDI in retail, aviation, insurance (a rise in limit) and to disinvest aggressively from PSU’s. The intent has strengthened after the appointment of a reform pusher as finance minister and the launch of a slew of baby steps to further market reforms. The stock market returns as a barometer of reforms and that bodes well for the tired bull and the wary retail investor.
Great investment opportunities aren’t overlooked for want of money. It is mostly the lack of will.
The hunt for defensive investments has caused the prices of stocks in FMCG, pharma and IT to rise as more money seems to be chasing fewer ideas. Naturally, these defensives are becoming pricier. At some point in time, these will no longer be worth buying by virtue of their becoming expensive. We are headed in that direction with FMCG and pharma stocks already trading near their recent highs in valuations. Intelligent investing is about finding the opportune moment to switch from defensive investments into deep value investments which trade cheap. Investors could either move from defensives to cash first and later move their money into investments or simply switch from one stock into another. As under performing companies are getting brutally punished by the stock market, the time to take a contrarian view of them isn’t too far. One needs to prepare to shed defense and buy aggressively into risk.
The long haul has just begun. A revival will take you far.