Stock markets are great levellers. This is best understood with the situation we are in currently. We had a heady rally, barring a few sharp corrections over 50 months, starting with the change of pre-election sentiment in 2014. It was touted to be a mother of all bull runs as India stepped into a decade of wealth creation led by a strong leader who had the vision to transform the country after decimating the opposition. Any voices of caution were muffled as it seemed “it was different this time”.
The marketmen latched on to the narrative that India did not prosper due to the misdeeds of the past government, but going ahead we should get back on track with the proposed reforms under the new leadership. No doubt we had upheavals during the introduction of some drastic measures like demonetization and other major reforms such as GST, however, the belief was that it would stand in good stead in the longer term.
'Expectations'drive human emotions and the stock market is a confluence of such emotions resulting in action. The promises by the NDA Government led to high expectations resulting in euphoria as markets rallied to justify the projected scenario. Lack of alternate investment avenues and a hard sell of mutual funds ensured a robust pipeline of 'never-seen-before' domestic liquidity feeding a virtuous cycle. Every correction was viewed as an opportunity and this was reconfirmed with a spirited bounce back leading to a new high.
Although the markets supposedly discount the future, the deliverables, whether from the corporates or the government, cannot be a moving goal-post. Though one can believe that the actions taken by the government were well-intended, their biggest draw-back was that “they could do no wrong”. If you can’t be faulted then you can’t be corrected. And this was their bane.
Whenever one ventures out to make a change, there always are challenges – both internal as well as external. The government was confident of managing the internal challenges due to the overwhelming mandate and assumed that it would be fairly insulated from external challenges. It had the fortune of low oil prices and a falling interest rate along with a relatively stable currency resulting in moderated inflation. Midway through the NDA term, the gap between expectation and delivery was visibly expanding, but instead of tapering expectation, the government continued to enhance it apart from sugar coating the deliverables.
2018 saw the external challenges rearing its head especially with trade wars, soaring oil prices, currency depreciation and rising rate regime pushing the government into a tight corner. Along with this, the restlessness was visible on the domestic front as the 'feel good' factor was giving way to despondency. This was accentuated due to the controversial Rafale deal, followed by the collapse of the infrastructure poster boy IL&FS and lately the liquidity crisis among the NBFCs and HFCs leading to a bigger worry of a contagion effect.
Today, there are very few optimists left in the market. The biggest global fear is that of trade wars. I strongly believe that President Trump is a businessman first, thus he would finally extract a deal. Closer home, it’s the general elections which would be bothering the markets. However, the Indian stock market in the last 3 decades has proven that it performs irrespective of the government at the Centre, as long as it is not anti-business.
Having spent a few decades in this market, I have witnessed a number of such upheavals. Every time we are in the midst of it, we are so overwhelmed that we stop looking beyond. Chaos always leads to a new order, thus presenting an opportunity which comes our way once in a while. And these opportunities always create more wealth than has been destroyed in the previous fall. We have a choice – either get overwhelmed and panic or stand out and hunt for opportunities.