Some respite, but structural issues remain

The most valuable commodity I know of is information,” utters Gordon Gekko rather mordantly to Bud in Oliver Stone’s 1987 classic, Wall Street. I would add ‘interpretation’ to these treasured words. As the global markets swing wildly, filtering through loads of information and making a sense out of it with conviction has become difficult. The global environment in recent past has become a lot more intricate than it has ever been. The developed world, which was the mark of capitalism, is struggling to hold its flag. The process of this shift, which began post the 2008 crisis, is likely to end with some sort of structural realignment on political, geographical and economical fronts. However, this transition would be volatile and painful. We are witnessing the beginning of this transition.

As I pen this, the fleeting pessimism has given way to exuberance – the Fed’s pledge to keep interest rates near zero for at least two years has stemmed the rot, at least for the time being, though the respite looks distinctly momentary. The recession in the US economy, troubles in the euro zone and fears of a bear market are far from being over. These will continue to hound repeatedly for few more years to come and we will have to co-exist with the effects of these problems.

How do we read this in conjunction with the Indian scenario? Global winds have swayed the RBI’s charted course, at least for the moment, as further rises in policy rates can be ruled out in September. Everyone is busy cheering the fact that slower global growth leading to softer commodity prices, is good for India. No doubt, it solves some of our gripping issues in the short term by containing inflationary pressures, but it does not address some of our structural problems.

Policy paralysis, corruption, meagre investment in infrastructure building, significant rise in the cost of all factors of production without a commensurate increase in productivity and boosting consumption ahead of income are major structural problems that we need to tackle immediately. This is not a pessimistic note overlooking many emerging or existing positives, but I second the common concern that we may be derailing our growth.

When the heap of domestic problems persists, keeping a check on our economic growth in tandem with the worsening global environment, it would be difficult to bring back a bull phase any time soon.

Remember, we are in a sideways market, not in a trending market. Thus, we will have to live with the implication of a sideways market with its traits like the absence of quick multi-baggers, prevalence on smaller trends, need to stick to quality, etc. Other asset classes such as fixed income and commodities would attract lot more interest than we have ever seen.

The author is President and Head - Institutional Equities, Edelweiss Securities Ltd