Rates rise. Growth tapers.

Growth in the Indian economy is definitely set to slow. We will see our GDP estimates getting tapered down as elections near. The focus has shifted decisively to containing inflation. The slower growth and the RBI’s moves should be long term positive in lowering inflation. Business will have to work in difficult circumstances for a period of time. This phase should see the distinction between the average and the great businesses get accentuated. The Government will also be forced to take active fiscal control measures. We will see the government, business and society recalibrate to a newer economic reality. The UPA’s refusal to recalibrate to this reality for a full five years after the stimulus of 2008 has brought things to this passé. The good news is that we will have a new government that inherits a much more sanguine economy.

It’s not bringing in the new ideas that’s so hard. It’s getting rid of the old ones. – JM Keynes.

Invest speak:

Liquidity’s impact on the stock markets can’t be wished away. Market players get overly influenced by liquidity and tend to care less for fundamentals. The markets obsession with money flows dominates market direction. Investors precisely fall for this bait. Liquidity affects the short term price movements while the business fundamentals always prevail over the long term. Traders may do well by focusing on liquidity flows and fluctuations in global capital movements. But, investors tend to always misread these trends and end up not investing when the fundamentals and valuations are favorably aligned. When the valuations of stocks reasonably reflect the business fundamentals, an investor must buy. A trader may take a call to wait if he thinks there is a risk of money moving out of his market. But, when an investor takes the same view, it could be disastrous. He will tend to be stranded out of a market rally. Sounds familiar.

Believe in the economy now. Evidence will follow.

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