1991 Redux @ 2020 by Meeta Shetty, Asst Fund Manager, Tata Mutual Fund
“Opportunity is often delivered in a fog of Uncertainly.” — Kahlil Gibran
Over the last couple of months, if there is one word which must have been mentioned zillions of times, it has to be ‘Unprecedented’. Every management interaction, speaker session, articles or even an informal talk that I have had, this word was never missed.
And it is indeed an unprecedented time, as one would have never thought, wearing a mask would become the way of living. Reminds me of a scene from Interstellar when sandstorms made it impossible to step out without a mask. Life though, is not a sci-fi Christopher Nolan movie where we have a wormhole leading the path to another galaxy, so our answers will have to be found on this very planet, perhaps as a vaccine or a drug. One can never be sure of timelines, but life will eventually crawl back to normalcy and so the optimist in me compels me to look at the silver linings, from the economy and investment perspective.
Between all the stimulus, liquidity measures and reforms that the government has announced, one of the gigantic steps taken by the government in this crisis is the agricultural reforms. India has once again lived up to its reputation of ‘Never let a crisis go waste’. A few economists, while welcoming this move, have even drawn parallels between the current agricultural framework and the Khilji dynasty. Many others have called it the ‘1991 moment’ for agriculture. These views emphasize the importance of this step but whether it lives up to the expectations as the LPG (Liberalization, Privatization, Globalization) reforms of 1991, needs to be seen. Its implementation in letter and spirit is critical to give the results. If it does, it can get the govt. closer to its target of doubling the farmer’s income by 2022, which would mean around 14-15 Cr farmer families will have more cash in hands to spend. This speaks volumes for a consumption driven economy like ours.
Another important aspect, which can unfold over the next few years, is on building a manufacturing muscle, driven by the need of ‘China plus one’ strategy. While India is known for its low-cost manpower and its technical and engineering capabilities, we could not bank on it. India’s GDP contribution from manufacturing stands at ~15% vs~25-30% for countries like China & South Korea. This crisis can push India a few notches higher in global manufacturing market, provided the government gives the needed thrust. If captured well, it can help in creating jobs for the incremental workforce addition of around 8-9 million that India sees every year.
While the aspects of increasing income and job opportunities should mean most macro indicators trending higher, on the other side, I am glaring at the ~25% correction in markets YTD and Nifty EPS cuts, which leads to a third consecutive year of nearly same earnings. Seeing this one would wonder whether it is the right time to invest into the equity markets, more so when most companies and economies are staring down the barrel of uncertainty. But if one believes that normalcy will eventually come back, most businesses will be back in business sooner or later and reforms will unfold as expected, then this is the time to start evaluating.
The near term though is very fluid and the swings in the equity markets are likely to be erratic as incremental data points are absorbed, evaluated and analyzed. Hence, as an investor it is also required to be nimble and agile to minimize judgement errors, but for equity investors with long-term horizon and the appropriate risk appetite, this is an opportunity to invest.
“In the short-run, the stock market is a voting machine but in the long-run, it is a weighing machine.” – Benjamin Graham
Disclaimer: The views expressed in this article are personal in nature and in is no way trying to predict the markets or to time them. The views expressed are for information purpose only and do not construe to be any investment, legal or taxation advice. Any action taken by you on the basis of the information contained herein is your responsibility alone and Tata Asset Management will not be liable in any manner for the consequences of such action taken by you. Please consult your Financial/Investment Adviser before investing. The views expressed in this article may not reflect in the scheme portfolios of Tata Mutual Fund.
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