The Demon Remains

The one thing where market consensus is growing is that domestic inflows into equity aren’t going to slow down anytime soon. This growing consensus is emboldening the sell side and the mutual funds industry.

The persistent FII selling isn’t doing much to unnerve domestic players. They seem supremely confident. But, such confidence is always a function of altitude. The higher the market is placed, the more confidence in equity. Indian market participants have almost always demonstrated more faith in equity at higher levels. This time is no different.

What are the risks to the present overconfidence? When this question is raised, thought leaders say that there is presently no alternative to equity. The risks seem to be getting sidestepped.

Let us take the risk head on. The risk to equity will rise if the economy decelerates post GST instead of gaining momentum. The slowdown in the economy should end up being temporary rather than structural. Economic thinking in India is still deeply divided on the impact of demonetization. This leaves the jury divided.

“All persons ought to endeavor to follow what is right, and not what is established ” – Aristotle

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