Politics always plays the dampener to good economics. This is how it works everywhere. Taking hard economic decisions is not a politician’s forte. In fact, politicians always look for easy ways. It is only when the cumulative effect of all the easy decisions land them in a soup that politicians can be moved to take hard decisions. Even those decisions will be resisted initially and will be taken only when they see political collateral damage. Indian politicians are seeing red now. They know that the people are not going to take bad governance lightly. Economic blunders can hurt election outcomes. We have seen it before and we seem to be heading there again. There is no alternative now but to keep the reform pipeline hyperactive. India is taking hard decisions now and has no alternative but to walk the talk. Actually, the crisis of the past month has cleared the doubts in the air.
Let not speculation drive your investment. Investment should rise above it.
The VIX a.k.a the Volatility index is an interesting measure of the prevalent fear in the market. The VIX was very high this week and peaked out around the time the dollar touched a new high versus the rupee. Fear causes irrational investor responses and heightened fear always triggers selling in the best of companies. When the best of companies lose heavily on successive days, the volatility hits a peak and tends to reverse. The reversal in the VIX reflects in a market recovery. The blue chips lose and regain prices very quickly. The events play out predictably and the palpable panic moderates over subsequent weeks. Investors do not know when the markets will bottom out and always look out for direction. The VIX is where investors must look to and understand how the markets’ fear psychosis will play out.
Great businesses will regain market value. Bet on them.