Over the past few months, the news has been depressing for investors (and many others as well!).
Internationally:
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The Greeks, Italians, and sundry other Europeans threaten to bring down the Euro
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The US government does not know how to revive its listless economy
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Even if they did, the Republicans would probably not allow them to do it
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All of them are trying to throw money at the problem, but the money is running out
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High commodity and food prices are fueling global inflation at an unprecedented rate
Even in India, despite decent GDP growth and a healthy financial system, there are umpteen negative signals:
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An endless stream of corruption scandals; 2G scam, CWG scam, Karnataka mining scam, Mayawati’s elephant statues, Goa mining scam, etc., etc.
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An immobilized government, and an absent Prime Minister
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Infrastructure investment is in limbo
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Innumerable bills gathering dust in Parliament
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Inflation refuses to be tamed and is (officially!) around 10%
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A tumbling Rupee only feeds inflationary fires
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Interest rates have and will continue to hit consumer big-ticket spending
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Unchecked and populist subsidies and sickly PSUs mean that deficits will only grow
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And now all of this is only too evident in the latest quarterly results
So where’s the good news?
Very little I’m afraid.
Does this mean that stocks will continue to fall?
Actually, I have no clue!
However, if history and two decades of investing experience have taught me anything – extreme pessimism is invariably priced in (as is extreme optimism). I really have no idea when markets will get bullish, or when earnings will start accelerating.
Much of the current selling pressure is due to hot foreign money, which will inevitably reverse. We just don’t know when. But if you’re a long term investor, this might be a good time to buck the popular sentiment.
India will be around 10 years from now, and it’s economy will be much bigger than today. India’s best run companies also be around; and much, much larger. For me, that’s a good reason to search for value amidst the “best” managements and companies.