Life stands (almost) still in Mumbai, the city being paralysed first by the incessant rains and then by the failure (yet again!) on the part of the city administration, which seems not to have learnt any serious lessons from last year’s deluge. As far as the stock markets are concerned, volatility and caution continue to rule the roost, as the markets continue on their path of ‘hunting for direction’. Volumes continue to be at yearly lows. But with the April-to-June quarter results on the anvil, markets might soon have something to chew on.
If one is to take a long-term view, India (and its equity markets) is surely on a growth path. However, we believe that the path ahead will surely not be as benign as has been the case in the past two years (except for the last 2 months). There are enough imbalances hanging like the Sword of Damocles on the global economy – high global crude prices, rising cost of capital, volatile currencies and the bubble-like situation in asset markets. Although we have been witness to some sort of correction and consolidation in global asset markets, the imbalances remain significant enough to be able to strike a strong negative chord anytime. Such is the situation with the Indian economy as well, though with some added issues, like Left-guided politics, high fiscal deficit and a grim infrastructure situation.
As such, we believe that investors have to be patient with their monies. Invest in sound and strong managements and business models and give your investment time to grow. While last year, Mumbaikars, with their undying spirit, taught others a lesson or two about maintaining discipline and balance of mind in times of uncertainty and crisis, this time they are showing how to avoid much risk by not treading too far in the turbulent waters! We shall reiterate here that while neck deep waters are navigable, neck deep losses can sink you!
Reliance Inds. – Merill Lynch
India Strategy – Earnings strong, but is this the peak? – Merill Lynch