The markets have a way of catching us on the wrong foot. When you see magazine covers boldly printing a headline – Sensex @ 12000, we see the index rising in the subsequent weeks. As an investor, we will end up feeling left out if we stay in cash in anticipation of a crash.
Market crashes are not events that follow magazine cover stories which are negative. They usually happen after a stupendous rise in valuations and when investors show a maximum appetite for stocks.
Now that the magazine cover stories giving pessimistic views are behind us, it may not be a bad idea to go contrarian.
The factors favoring a positive view are gradually adding up. Let us list some of the factors:
1 The Indian economy is growing at a predictable and healthy pace. 8% plus GDP growth is something unthinkable for most countries in the developed world. This growth rate would mean that several sectors should see higher growth within the economy.
2. The monsoon should be closer to normal. That augurs well for agriculture and food inflation which hurt badly last year. A higher base effect would mean that food inflation will not come to hurt in the next 12 months.
3. The government has hit the bullseye with the licensing of telecom. The thrust will now move to disinvestment of PSU’s where we will see a surprisingly high mobilization way in excess of budgetary estimates.
That should mean that the fiscal situation will look much better by the year-end.
4. The DTC will make more investors think of investing in capital markets as there will be adequate incentives to invest more. Therefore the per capita allocation of funds to the capital market will rise. There will also be rapid growth in the investment culture as the demography changes. We have a high headroom to expand the reach of financial products and the next few years will see a paradigm shift in investing.
5. GST implementation will further act as a growth fillip as the parallel economy will continuously lose out and the real economy will gain several basis points of growth from the migration of business.
6. The telecom revolution in the making will see a second wave of transformation of businesses. This will change the way we work and provide a fillip to growth while raising efficiency and competitiveness.
When the real economy has several positive factors working in its favor, it will be a safe bet to make our investment decisions India-centric and use every volatile movement in global markets as a buying opportunity in India.
We should now watch out for magazine covers which scream ‘SENSEX 28000′.
Then we must probably turn bearish and hit the exit button. Till then, fasten your seat belts. The INDIAN STORY IS HEADED FOR A SMOOTH TAKE OFF.