Sentiment versus fundamentals

We need to accept the reality that periods of decline, like growth, are a part and parcel of economics.

Warren Buffett’s recommendation to “look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it”, is a profound insight into how we ought to look at India’s economic position today.

Market sentiments draw heavily from collective psychological behaviour, which may be too complex to allow objective analysis. But one thing that is clear is that, when more and more people perceive a certain thing negatively, the outcome may actually turn out to be negative.
Effect of sentiment

From an economic perspective, there have been several examples where weak market sentiments alone have wrecked otherwise sound economies. According to Jeffrey Sachs, a Columbia University professor, the Asian financial meltdown of 1998 could have easily been averted, had it not been for investors exiting en masse. The massive exodus of investors inflicted far more harm on the Asian economies than the macroeconomic anomalies at the time.

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