Indian Markets : The Opportunity Knocks
Years from now, we’ll marvel at winning businesses. The trick is to spot them now.
There is something about December that puts me in an introspective mood. I recount events and trends, and make mental balance sheets. There is a beauty in the cyclical behaviour of markets, which unfold in strikingly similar ways. When tomato prices rise, more land will come under the crop;
Higher produce will eventually bring down prices. Price cycles of assets may not always be as short or as predictable, but markets do alternate between bouts of exuberance and correction.
‘Been there, seen that.’
Cyclical trends, however, tend to breed complacence: there is a sense of deja vu about unfolding events. To combat that, one should look at secular trends over the long term, which take in several strong structural changes and shocks and a return to balance. The key to long-term investing lies in braving these shocks. Our returns and our risks depend on how these themes play out and how well we understand and use them.
Over 100 years ago, there was no challenging the dominance of the UK in the political and economic spheres. Over time, the US’ GDP overtook Britain’s and the dollar took the sterling’s place. Today, the world’s topmost concern is the weakening dollar. Structural imbalances in the US economy–its large trade deficit, the high level of indebtedness of its population, and the profligacy of its government–will take a while to correct. Japan’s rise in the ’70s and its challenge to the US economic might halted in the late 1980s because its thriving export earnings were spent on acquiring assets and pushing their prices to unrealistic heights. China’s miraculous growth is interspersed with stories of unfair labour practices, high NPAs of banks, and an artificially managed currency. Then there are the sad stories of African countries with huge natural resources, which are frittered away by their exploitative rulers.
The risk that investors bear and the returns they can expect are linked to the structural imbalances in the markets, but most are happy to deal with cycles. Exporters today have to factor in the changing value of the rupee: our trade volumes, the countries we trade with, the goods we deal in... everything has changed. Investment opportunities across various sectors– from IT to pharma to textiles to wines to cut roses–will be impacted by the rupee’s value. To ride the export growth cycle, we must brave currency risks and global competitiveness risks.
If the bane of agricultural produce marketing was intermediation, e-choupals and direct sourcing are altering the rules. It’s not about the conversion of mustard fields into lettuce in Punjab or jowar fields to cut-rose plots in Maharashtra. The change is about altering completely what is produced, what efficiencies are sought, to whom it is sold and what prices are realised. To ride the agricultural cycle over the next 30 years, one needs to have a third eye and be able to weather politics, vested interests and the lack of capital.
The opportunities in Indian markets today reveal the economic up-cycle unfolding at various levels as businesses play to a new set of rules. Banks today are not dishing out loans under political pressure to dubious businesses: it’s a tougher world today, where credentials have to be established. Interest rates are not fixed by the government either. Customers are getting used to ‘service’ and ‘choice’–words that were not associated with the Indian industry even 10 years ago. Communication rules business–from e-mail-based approvals, to cellphone-wielding dhobis. Each of these innocuous changes will create investment opportunities for you and me.
Get set.
What does all this mean to the investor? There are big gains to be had if you can identify opportunities that are at the beginning of the up-cycle. In a free economy, and with the world open to us, opportunity beckons. Ten years from now, we will all share stories of Indian businesses that grew big and prosperous in front of our eyes. But in their onward march, they will be tossed about by unexpected changes, so the risks too are high and difficult to foresee. The Doubting Thomases who say that whatever goes up must come down and constantly ready themselves for a bear market are missing the picture. When the Dow Jones index crossed 500 in April 1956, it was at a 10-year high, having dizzily risen from the 50 levels of 1930s. Less than 50 years later that same index crossed 10,000. No investor could have foreseen that in 1956. Chew on that when you assess the Sensex today.
Happy Investing
Source:Outlookmoney
Years from now, we’ll marvel at winning businesses. The trick is to spot them now.
There is something about December that puts me in an introspective mood. I recount events and trends, and make mental balance sheets. There is a beauty in the cyclical behaviour of markets, which unfold in strikingly similar ways. When tomato prices rise, more land will come under the crop;
Higher produce will eventually bring down prices. Price cycles of assets may not always be as short or as predictable, but markets do alternate between bouts of exuberance and correction.
‘Been there, seen that.’
Cyclical trends, however, tend to breed complacence: there is a sense of deja vu about unfolding events. To combat that, one should look at secular trends over the long term, which take in several strong structural changes and shocks and a return to balance. The key to long-term investing lies in braving these shocks. Our returns and our risks depend on how these themes play out and how well we understand and use them.
Over 100 years ago, there was no challenging the dominance of the UK in the political and economic spheres. Over time, the US’ GDP overtook Britain’s and the dollar took the sterling’s place. Today, the world’s topmost concern is the weakening dollar. Structural imbalances in the US economy–its large trade deficit, the high level of indebtedness of its population, and the profligacy of its government–will take a while to correct. Japan’s rise in the ’70s and its challenge to the US economic might halted in the late 1980s because its thriving export earnings were spent on acquiring assets and pushing their prices to unrealistic heights. China’s miraculous growth is interspersed with stories of unfair labour practices, high NPAs of banks, and an artificially managed currency. Then there are the sad stories of African countries with huge natural resources, which are frittered away by their exploitative rulers.
The risk that investors bear and the returns they can expect are linked to the structural imbalances in the markets, but most are happy to deal with cycles. Exporters today have to factor in the changing value of the rupee: our trade volumes, the countries we trade with, the goods we deal in... everything has changed. Investment opportunities across various sectors– from IT to pharma to textiles to wines to cut roses–will be impacted by the rupee’s value. To ride the export growth cycle, we must brave currency risks and global competitiveness risks.
If the bane of agricultural produce marketing was intermediation, e-choupals and direct sourcing are altering the rules. It’s not about the conversion of mustard fields into lettuce in Punjab or jowar fields to cut-rose plots in Maharashtra. The change is about altering completely what is produced, what efficiencies are sought, to whom it is sold and what prices are realised. To ride the agricultural cycle over the next 30 years, one needs to have a third eye and be able to weather politics, vested interests and the lack of capital.
The opportunities in Indian markets today reveal the economic up-cycle unfolding at various levels as businesses play to a new set of rules. Banks today are not dishing out loans under political pressure to dubious businesses: it’s a tougher world today, where credentials have to be established. Interest rates are not fixed by the government either. Customers are getting used to ‘service’ and ‘choice’–words that were not associated with the Indian industry even 10 years ago. Communication rules business–from e-mail-based approvals, to cellphone-wielding dhobis. Each of these innocuous changes will create investment opportunities for you and me.
Get set.
What does all this mean to the investor? There are big gains to be had if you can identify opportunities that are at the beginning of the up-cycle. In a free economy, and with the world open to us, opportunity beckons. Ten years from now, we will all share stories of Indian businesses that grew big and prosperous in front of our eyes. But in their onward march, they will be tossed about by unexpected changes, so the risks too are high and difficult to foresee. The Doubting Thomases who say that whatever goes up must come down and constantly ready themselves for a bear market are missing the picture. When the Dow Jones index crossed 500 in April 1956, it was at a 10-year high, having dizzily risen from the 50 levels of 1930s. Less than 50 years later that same index crossed 10,000. No investor could have foreseen that in 1956. Chew on that when you assess the Sensex today.
Happy Investing
Source:Outlookmoney
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