INSUBCONTINENT EXCLUSIVE:
By Dhirendra KumarSo, the mountain peak has been climbed and the green valley on the far side is now visible
I’m referring to the elections
For months now, the Lok Sabha elections had loomed like a mountain in front of equity investors
They had no choice but to climb it but had little idea what lay beyond
By now, from the reaction of the equity markets, we know what investors think lies before them.
In the language of traders, what the Indian
equity markets are seeing now is a ‘relief rally.’ The idea is that markets are rising not because of the presence of good news but
rather the absence of bad news
They’re relieved that the situation has not turned out to be as bad as they had feared
Equity traders were apprehensive of the results that would be adverse in different ways but are now feeling relieved and are buying stocks
at higher prices and so, this is called a relief rally
So far, so good.
However, the headlines tell us that the business and economic news are not good
The rate of GDP growth has dropped to 5.8 per cent over the January-March quarter –– the lowest in five years
The news from sectors like automobiles is alarming with bellwether Maruti’s sales shrinking by 22 per cent over a year ago, which is the
worst drop in seven years
Corporate numbers are in the doldrums and any strength in stock prices are making equities overpriced than they are
More broadbased indicators like direct tax collections are also suspect.
It’s the kind of time people are advised not to invest, and to
hold on to their cash and keep it in safe havens like banks and liquid funds
If you scan the investment media, there’s no shortage of advice of this sort and all of it sounds balanced, sensible and cautious
It’s also completely wrong.
If one takes a long view, then the conclusion could be the opposite
This is a great time to invest
The reason is simple: the near-term outlook is not great but the longterm outlook is fabulous
Some reasons for the near-term being shaky are given above
However, the reasons for the long-term outlook being good is simply this government’s track record on tackling fundamental economic and
business issues over the past five years
It’s a little bit like analysing a company and saying that the details matter less than the management.
For the individual investor,
it’s pretty obvious what path to take
Keep investing steadily, ideally through SIPs, ideally in a small set of equity mutual funds
Through good, medium and bad times, that’s the route that’ll give you the highest likelihood of meeting your financial goals.
This
raises an interesting question: what would have been the right advice had the election results been different What if we were currently in a
situation where ministries were being sold to the highest bidders in a coalition government and power brokers were running amok in Delhi as
they used to in the past Most of us have heard those infamous phone recordings and so know what used to happen.
What would I have written
here in that case That’s the really interesting part –– the correct investment advice would still be exactly the same! As an
individual investor, your investment plan would be pretty much useless if you had to predict future events and modify them
This has nothing specifically to do with these elections
It applies to all external events
Why that should be the case, and how you can ensure that you stay on course That’s a story for another day, soon.