A slowdown stares at us. Bad news, isn’t it? But, it comes with a silver lining. This slow down is not cyclical. It has not been thrust on us by the times. It is systemic. Our system has invited it on us. Masterly inaction has been the best practice of several Prime Ministers in the past. But, this one is of a different kind. It is his master’s inaction that is hurting India. India has chosen to inflict an economic self goal on herself. How? By simply accepting this laissez-faire model of governance in a period of global tumult. What is the remedy? Will continued inaction find solutions crop up on their own? Any solution that is auto ignited will not be half as good as one that is genuinely pursued with National unity. Yet, one thing can help the situation, a commodity crash. Seeing the Brent crude hover below $100, one sees some hope for the rupee.
Drawing up parallels is one way of arriving at investment decisions. In similar scenarios during the past, the stock market behaved identically. Stocks were under – owned. Macro numbers looked weakening, inflation was high and interest rates were near their peak. One important similarity is evidenced in each of these phases. The stock operators were dormant. This has a serious bearing on the valuations of stocks. It is the operators of stocks who principally distort valuations. When the bulls dominate, stock prices are expensive. When the bears prevail, the stock prices sell cheap. In the absence of both, valuations are moderating slowly. From experience, this moderation always leads to one final capitulation. Buying stocks during this phase of moderating valuations is a safe way to raise one’s equity exposure gradually. If the capitulation happens in the interim, investors must swiftly switch gears and hasten buying. When the operators are away, prices are least manipulated, valuations are modest and investments happen in an orderly way. That is the way a winning portfolio ought to be built.