In India, it's different. Really?

With the financial world again in turmoil, several MF managers are trying to tell their investors that it could be the best time to invest, almost on the lines of Sabharwal's 2009 post

It was late 2007 and the sub-prime crisis was wreaking havoc in global markets. Stock and asset prices were collapsing, world over. However, not in India. The Sensex started scaling new peaks, although at less speed.

Not all were convinced. JM Financial Mutual Fund’s chief investment officer, Sandip Sabharwal, started booking profits in many of his schemes and was moving to cash.

As the index started getting into uncharted territory, theorists who had floated a ‘decoupling’ theory, reiterated the Indian markets and economy had own strong fundamentals, more than more than enough to sustain a ‘structural’ bull market. People like Sabharwal who did not buy this were beginning to look foolish as the Sensex breached 20,000 in January 2008 and still looked to be going strong. MF managers, married to net asset values, can only go contra up to a point.

Just before the market capitulated and when it was at its peak, Sabharwal put the cash back in and JM’s funds never really recovered from the carnage. Sabharwal, who now runs his own advisory, would later recall the circumstances in his blogpost http://www.sandipsabharwal.com/?p=190 . He ends this post in 2009 with: “I will only say that investments made during extreme euphoria normally lead to huge losses and investments made during extreme despair (as we see today) would typically lead to returns that are double that of historic averages over the next five years.”

With the financial world again in turmoil, several mutual fund (MF) managers are trying to tell their investors that it could be the best time to invest, almost on the lines of Sabharwal’s 2009 post. In an article titled, ‘Make most of the opportunity’ in The Times of India last week, HDFC MF’s Prashant Jain asked investors to make the most of the cheap valuations. Paraphrasing Kabir, he wrote, “Remember God in good times and equities in bad times.”

To justify this, fund managers like him who fear large-scale redemptions that can demolish carefully built portfolios are pointing to India being the lone bright spot in a slowing global economy. India is growing, others are contracting. So, investors would continue to come here, they seem to suggest.

True, Brazil and Russia are contracting, while China is rapidly slowing. Crude oil has shown some sudden resurgence but is still over 70 per cent off its peaks. But, India’s key economic parameters such as inflation, the fiscal and current account deficits, and growth in gross domestic product are at a sweet spot. Is this ‘lone bright spot’ theory a different version of the decoupling theory of 2007-08?

The pullback of the past two sessions has added to the confusion. Are we about to capitulate as in January 2008? Several bears have already alluded to this. Or are we in times that call for throwing in more money that would reap dividends?

One event people are not recalling too much these days was the 25 basis point increase in rates by the US Federal Reserve last month. It was brushed aside as having been absorbed or discounted by the markets. The Fed was given credit for managing it very well.

Was it too soon? The Sensex has lost around five per cent since December 17. For a market shamelessly dependent on foreign money and having thrived on easy money, is that all the impact of the end of the largest asset price inflation programme ever, termed ‘quantitative easing’? More hikes are on the way, the Fed has said, which could mean more outflows and deeper cracks.

Therefore, listen to Jain’s advice but don’t forget Sabharwal’s experience. To paraphrase Sir John Templeton: The four dangerous words in investing in India are, ‘In India, it’s different’.