Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
It's not just politics, stupid! - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • May 19, 2004

    It's not just politics, stupid!

    Equity markets in India stand numb, still trying to come to terms with what has happened over the past three days. In light of the current round of debacle in these markets, let us examine the responses received for a poll conducted last week on our website. We had asked our viewers the question as to what, according to them, was the key reason for the stock markets to fall so drastically. The responses are summarised in the graph below.

    Almost unanimously, about 93% of those who cast their vote, polled for political concerns to be the biggest factor behind the market fall. The other two factors, i.e., oil prices and terrorism, polled a mere 6% and 1% votes respectively. Let us discuss the three factors in detail.

    Political concerns
    In line with the audience view, we believe that the present fall in the stock markets is largely a reason of concerns on the political front. However, what is more important to note here is that the effect seems to be overblown. Even when the new government has not assumed its responsibilities, the markets seem to be extremely depressed. While we believe that politics do take the precedence in the top-down approach to investing, over the long-term, fundamentals are likely to play an important role in determining returns to investors.

    The importance of politics emanates from the fact that government policies have a very strong impact on the performance of all the three constituents of a country's output - agriculture, industries and services. This further affects investment decisions, as investors are generally apprehensive of an unstable government. The current stream of events in Indian politics and the consequent effects on the stocks markets bear testimony to this fact. Almost suddenly, fundamentals have been forgotten! Almost suddenly, yesterday's crown companies have no takers! This is indicative of the degree of effect that stability in politics has on stock prices.

    Oil prices
    Hardening crude oil prices is another important reason for the recent downfall in the stock markets. However, since politics has taken precedence over everything else at present, this concern has not been given due importance. If crude prices continue to rise, it may culminate to rising inflation in global economies, especially in those (like India) that are highly dependent on oil imports. This may then lead to the central banks changing their stance from soft interest rates to increasing them to bring about price stability (inflation control). This rise in interest may then slow down the economic growth that seems to be showing signs of sustenance after the last couple of years of slowdown.

    As we had said in an earlier article, terrorism has been one of most serious concerns that has shadowed global economic growth over the past few years. First it was the September 11 attack in the US, then it was the Iraqi conquest by the Americans and then it was bomb blasts at Madrid. All these events are indicative of the danger of terrorism rearing its head time and again. India has had its share of the same as well (attack on the Parliament in 2001 and last year's bomb blasts in Mumbai). Terrorism not only leads to loss of innocent lives, it also brings economic activities to a grinding halt.

    We will like to reiterate here that investors should not consider only political uncertainty as the perpetrator of their losses. There are several other factors playing very important roles in determining the pace of global economic growth and, consequently, returns for investors in equities. However, while factors like political uncertainty are more likely to have a medium-term effect, others like terrorism and interest rate rise are likely to have long-term bearing.

    In that case, a staggered and a long-term strategy is most likely to be successful in providing investors with adequate returns on their investment. However, in these times of high levels of political uncertainty, we advise investors to practice a wait and watch policy and do not fall prey to the overall chaos. After all, as someone said, "The only problem with a rat race is that, even if you win, you are still a rat."



    Equitymaster requests your view! Post a comment on "It's not just politics, stupid!". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why Hasn't Warren Buffett Rung the Bell Yet? (The 5 Minute Wrapup)

    Aug 22, 2017

    It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.

    Think Twice Before You Keep Money In A Savings Bank Account (Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    A Darkness Is Spreading Across the US (Vivek Kaul's Diary)

    Aug 22, 2017

    Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 22, 2017 (Close)