Be optimistic, be disciplined

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SummaryWhile the Indian equity market went through one of the toughest phases in the last three years, it has seen a significant vibrancy in mood after a series of announcements from the government in the recent past.

Equity asset class needs to have higher exposure in the investor’s portfolio

A Balasubramanian

While the Indian equity market went through one of the toughest phases in the last three years, it has seen a significant vibrancy in mood after a series of announcements from the government in the recent past. Straddling between high conviction and confidence riding on the India story on one side, and economic fundamentals and dynamics in politics keeping sentiment low on the other side, the equity market saw poor participation from the domestic investors while foreign investors continued to cement their confidence in the Indian market. Perhaps thanks to the poor growth in some other countries which made India more attractive on relative comparison.

The equity market reflects economic sentiment and activities much deeper both in the bull phase and the bear phase. Looking at the returns over the last five years, investors may feel a little disappointed. However especially over the last few quarters, they are beginning to realise the importance of this asset class. If people knew just how to time the market, I am sure there would be more members in the ‘million dollar club’. What would hold investors in good stead—is to stay invested in the markets for as long as they can. As Warren Buffett said, “Time in the market is much more important than timing the market”.

Let us now examine some of the fundamentals.

The Indian growth story based on demographic dividend, infrastructure development, growing middle class, high savings and investments rate has been retold many times. Most people, however, assumed that the good times would continue in a linear fashion and neglected to account for variable change, i.e., persistently high inflation, government’s lackadaisical approach and global volatility. The current set of people at the helm of the government and politics have seen it all over two decades and they have done it in the past the task of reviving the economy when the issue belonged only to us exclusively as a country. This time around, the issues are slightly of a different nature.

First and foremost is inflation—something which is created by us and something bought by us from global prices. Inflation pressure is also created by the changing consumer behaviour of the Indian middle class. The dependence on electricity has been rising but the production of power has not been keeping pace with the demand. The government’s efforts

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