Thursday, March 20, 2014
Friday, March 14, 2014
Weekend Ramblings
Indian Markets are scaling new highs as expectations of a pro reform pro growth stable government takes center stage. But does a stable government solve all the problems facing the nation as a whole? Wasn't UPA 2 supposed to be that stable government and look where its gotten us. We got that stable govt we so longed for and 5 years down the line India is in a major stagflationary environment. 4-5% growth in a country like India feels like recession so yes stagflation is probably the right environment to describe where we find ourselves presently. Inflation is still very high but the central bank seems to be comfortable with the new normal of 8-10% inflation as can be seen by persistent 8-10% numbers for the past 4 years and yet continuous monetary base expansion by the RBI.
As we approach the 2014 general elections, I read and hear a lot of analysis by analysts at leading banks and other mutual funds using 2009 as a template for what we can expect going forward. What worries me is that in 2009 the world was coming out of a once in a lifetime kind of deflationary depressive environment and no one was expecting UPA 2 to come to power without the support of the Left. They did and markets cheered with 2 back to back 10% upper circuits on major indices. This time around markets are going into the event expecting a favorable outcome assuming that the NDA will come to power with a thumping majority and asset prices are already at lifetime highs.
Can the market continue to keep scaling new highs in the hope that the new govt will fix all our problems? Yes but is it also possible that the risk reward ratio is now very firmly against the bulls? I do believe so.
As we approach the 2014 general elections, I read and hear a lot of analysis by analysts at leading banks and other mutual funds using 2009 as a template for what we can expect going forward. What worries me is that in 2009 the world was coming out of a once in a lifetime kind of deflationary depressive environment and no one was expecting UPA 2 to come to power without the support of the Left. They did and markets cheered with 2 back to back 10% upper circuits on major indices. This time around markets are going into the event expecting a favorable outcome assuming that the NDA will come to power with a thumping majority and asset prices are already at lifetime highs.
Can the market continue to keep scaling new highs in the hope that the new govt will fix all our problems? Yes but is it also possible that the risk reward ratio is now very firmly against the bulls? I do believe so.
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