Hopes, greed, and fear
Our recent interactions with investors and businesspersons
have convinced us that the though the greed is staging a comeback with rising
hopes, the fear still continues to be the dominating factor in influencing the
investment decisions.
We conclude that the following three may be primary sources
of high hopes:
(a)
The slowing growth rising stress in the
financial system prompt RBI for an aggressive monetary easing in second half of
2013. Easing inflation, government’s resolve to return to sustainable fiscal
path should support RBI’s easing decision.
(b)
The liquidity tightness seen since past few
quarters should ease (i) as the government starts spending in new fiscal year;
(ii) 9 state assemblies going for election followed by the general election due
May 2014 should also prompt higher government spending; (iii) lower inflation
and direct cash transfer scheme will leave more money in the hands of consumers
to do some discretionary spending; (iv) a normal monsoon will prop rural income
and consumption besides savings and deposits: (v) banks will be done with most
of the restructuring in 1H2013 and should be willing to lend more in 2H2013
thus improving the liquidity.
(c)
Global economy shall stabilize in 2H2013 with
abundant liquidity, still lower rates, stable energy prices (as US energy
production continues to rise) and US, EU and Chinese consumers returning to
market.
The greed is rising alongside hopes as the investor positioning
is ultra conservative and manufacturing and services capacity addition has
lagged in past four years. Besides, the valuations (and more importantly the
current market prices of stocks) are looking cheaper relative to the boom years
of 2006-07.
But surprisingly, no urgency is seen amongst investors and
businesspersons to catch the first flight. Since the fear still continues to
dominate
The fear is stemming primarily from the political uncertainty
and structural weaknesses in the economy. The general sense appears to be that
the 2014 elections may produce a fractured mandate with none of the national
parties crossing 150 seats. In that case the 1989 and 1996 experiments will
recur, deepening the economic crisis even further. This fear will not abate by
any stock market rally. We shall have to wait till the
election results are
out.
Secondly, it is feared that the 8%+ growth seen during 2003-2008
period may not be seen in next five years as the economic potential of the
country has suffered badly due to severe infrastructure bottlenecks, low
capacity creation, falling savings and investments rates and consequent sticky
inflation. The earliest evidence, if any, to allay this fear will be available
only in 2H2013 when the monetary easing (if any) starts reflecting in IIP and
consumption numbers.
Under these circumstances, we continue to remain hopeful that we
shall get a better entry point in Indian equities during summer of 2013. Till
then savor the cash and watch the targets carefully.
An interesting tag line behind a truck: Jinhe jaldi thi woh
chale gaye (Those who were in hurry have passed away.)
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