Despite gloom, value exists in present stock markets: Sandesh Kirkire

The economy has been absorbing some incessant shocks since the past few months, some emanating from the political arena, some from the financial.

The GDP growth rate in Q1FY14 has moderated down to 4.4%, with a more gloomy forecast ahead. It is easy to get pessimistic in such an environment, but then the fine scale of entrepreneurship gets determined in these very times. It is only in such times that asset buying opportunities arise, but what is critical is accuracy of judgment regarding the value and the outlook on the asset.

For instance, in equally gloomy days of mid-2008 when the global economy was reeling under the sub-prime crisis, the Indian 10-year G-sec yields had hardened to above 9% levels. At that point in time, the US economy and much of the world was reeling under recession. The business confidence and outlook had sagged. But the fact is, informed investors made money that point in time.

A bond investor, investing in 10-year G-sec at around July-August of 2008 (and with a 1 year investment horizon), would have garnered a return of around 19% at the minimum, and around 25% at the maximum. The point is, keeping an eye on the value for which you are paying money, is important. It is from that stand point that I am making a case that value exists in present Indian markets. What would be needed is long- term investment horizon and calibrated investments to mitigate short term volatility.

From the macro viewpoint, the investment attractiveness of India seems to be flagging. On the 'Ease of Doing Business' Index, India stands at 132. While this was almost always the case, India with around 4% GDP growth would be unable to attract the same degree of investor willingness to manage the bureaucratic labyrinth, which it did earlier.

Long-term wealth is generated by creating and exchanging value, or what is called business. For that, the core thrust of reform must be to allow more and more meritorious people to produce value: faster, cheaper and better. While many big ticket reforms possibilities exist, even the execution of small steps and decisions that remove many non-tariff hurdles in turning around projects would itself be a big booster.

For now, the economic activity report for Q1-FY14 (at FY05 cost) seems to suggest that gross fixed capital formation in the economy may have contracted over the similar quarter last year. Moreover, the size of the valuables, which broadly implies non-monetary gold and precious metal purchases within economy, may have almost doubled over the same period last year. This indicates continued savings but sagging investment opportunities within the country.

SANDESH KIRKIRE
CEO, Kotak Mutual Fund

(This is a sponsored article)