Last two weeks have been quite eventful for investors in Indian
markets.
First, the Parliament in a completely unexpected show of efficiency
passed four landmark legislations, viz., Companies Act; The National Food
Security Bill; Right to Fair Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Bill and Pension Fund Regulatory and
Development Authority (PFRDA) Bill.
These legislations mark a watershed in India socio-economic
history and will certainly have far reaching implications. Moreover, the
urgency shown by the legislators in clearing these bills suggests that despite
all criticism our elected representatives recognize the economic emergency and
are willing to work together in this time of crisis. This should inspire
investors in general.
Second, the change of guards at the Reserve Bank of India
coincided with announcement of a slew measures to stem the sharp depreciation
in INR. The new governor promised a more effective, transparent, calibrated and
articulated policy measures. Currency markets took the lead and saw some
speculative unwinding. We shall see more of that in coming months. Remember, we
have been maintaining
that the speculative element in the INR value should correct by year end but
there is no visibility on the structural corrections.
Many commentators have been quick to announce anointment of Mr.
Rajan as RBI governor as a turnaround in Indian economic cycle and therefore a
cause for optimism.
We have maintained that the measures announced by Mr. Rajan are
well intended and effective and should help in achieving limited objectives.
However, these do not change our strategy premise that structurally the trend
growth for Indian economy is 5-6% and not 8% towards which our planning process
is geared. Unless the entire planning process is reoriented to this realistic
sustainable growth trend, the structural imbalances in the economy cannot be
corrected. This premise gains more strength from the above cited four
legislations which should promote equitable, sustainable inclusive and slower
growth.
Third, the economic data from the developed world suggested that
developed economies are now stabilizing and the chances of a collapse are
remote at this point in time. Therefore, in foreseeable future a need may arise
for correction in the unconventional monetary and fiscal policies pursued since
the 2008-09 collapse. This correction will inevitably lead to tighter and
expensive money. This may not be good news for capital starved deficit
economies like India. It would therefore be prudent to build a strong internal
defense mechanism. Putting excessive reliance on global funds is fraught with
extreme risks.
Fourth, the chances of a full scale escalation in Syria
diminished as western nation failed to build a consensus on the imperative of
such action.
As suggested last week, we do not see any need for change in our
underweight equity strategy as yet. We shall review it after 20th
September.
In next few days, we shall highlight what could be done to build
a strong local defense against likely global rebalancing.
Thought for the day
“Strange as it may seem, no amount of learning can cure stupidity, and formal education positively fortifies it.”
- Stephen Vizinczey (Hungary, 1933)
- Stephen Vizinczey (Hungary, 1933)
Word of the day
Ignoramus (n)
An ignorant person; a dunce.
(Source: Dictionary.com)
Shri Nārada Uvāca
The best thing going for India is unfailing democracy. Howsoever chaotic it may seem.
MMS says he is happy to work under Rahul Gandhi.
This reflects on whom – MMS, Rahul Gandhi, or Congress Party?
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