What exactly is at play in the markets right now given the fact that we have seen sharp fall across the board. We thought FMCG index was holding on to some gains, some of the names were holding on to gains but they have also actually caved in.
Market is embracing a weak Modi setup at least and it is not fully priced in yet. So, the areas where there was euphoria given the policy thrust of the incumbent, be it in PSU, defence, manufacturing, that is bleeding a lot more. Once we sort of look beneath the surface, there is sort of all blood on the Streets right now.
And legitimately so because there were pricing blue sky and it is likely that a lot of it will have to be unwound. It is still likely that Modi would return, but the best case scenario for the market would be a Vajpayee like Modi versus one which continues to have animosity with state because that setup would be very-very bad for market.
So, I do not think markets have sort of absorbed the entire news.
Now all eyes will be on the policy reforms coming in. Given the fact that if the numbers are to go by, which means that it gives the government a weaker mandate, is not it, so we will not see that firm move when it comes to the policy reforms that they have been taking over the last 10 years. Is that spooking the market as well?
Yes, so I am actually not a big votary of all these major reforms. I think a stable regime over the next few years is decent enough for us to revive capex and start to then chug along and sort of produce a decent growth. I think there is a silver lining that a lot of the cultural and ideological policies, things like, let us say capital gain tax may not come. So, in midst of so much of doom and gloom, there could still be some positive takeaway. But as a matter of fact, as I said, markets were baking in sort of blue sky in so many things that, that trade will have to be unwound and unfortunately far too much of retail money is stuck in smallcaps and these themes, that pain would, as I said, just beneath the surface that pain is sort of far more than what you are seeing on the screen as far as Nifty and mega caps are concerned. So, I am not sure the so-called reforms would sort of that lots of people were clamouring for land, labour, some of these would not come. The ideological big moves would not happen such as capital gain tax. And I guess the onus now is on the private sector. Given the capacity utilisation are high, the financial conditions are decent, leverage is low. You have a reasonable case to make that Indian capex revival can happen. But then on the other side, you will have a slow pain that both foreigners and locals will have to revisit, the foreigners because they have better opportunities abroad, especially in emerging markets, including China and locals because they are overweight right now on Indian equities, especially what has happened over the last 6-12 months so that reassessment will happen and flow will slow down. So, after this, period of turbulence over the next few months you will still have sort of a reasonable space for one to dial risk and I stay sort of constructive on India. India growth will be decent over the next three-five years and therefore there will be opportunities. But then, do not dial risk for investors right away, do not dabble in risk right away just because things are down. Let the big picture emerge and take a first principle approach of what sort of policy frameworks will sort of evolve and basis that you take the call.