Talking to HNI’s and investors gives one a clear sense of their despair that is set to turn into extreme anger. In the past few years, every asset class has failed them. First, it was equity. Then, gold failed. Now, it is the turn of debt funds. So, the bank FD is seen as the only resort. Somehow, investors seem to be forgetting that the guarantee on FD is restricted to Rs.1 lakh. So, if banks fail under the burden of bad loans, they aren’t obligated to pay more than that. And, past positions of RBI on depositors monies need not prevail in a new set of circumstances. That brings us to the basic premise – there is nothing risk free. Risk is everywhere and unavoidable. What investors seem to have lost touch with is how to deal with risk. One thing seems to have been forgotten by most of us – the art of waiting. One needs to learn two facets of waiting. One must learn to invest and wait. And, one must learn to wait and invest. In both cases, the wait can’t be blind or endless. It must be closely aligned to the asset cycles. A smart investor should end his wait before others do.
You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing. – Charlie Munger.
The commodity super cycle played itself out over the past decade putting user businesses under severe stress. Margins of commodity user industries experienced a sustained squeeze as businesses struggled under the load of rising interest rates, falling demand and high raw material costs. Slowly, evidence of falling commodity prices is now showing up. India has however not benefited from these falling prices due to the weak rupee. Our companies are paying the price for the failure of the government to ensure fiscal discipline. This has depressed corporate earnings and distorted the investor perception on Indian business. As more and more commodities see a fall in global prices, India must wait for our macros to improve. The picture of our corporate earnings will look very different when our rupee regains some semblance of respect. Till then, corporate India will continue its quest for more efficiency and that’s the good news.
Buy the beaten down blue chips. Perception is always fickle.