X

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.
Investing: A macro perspective - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Dec 8, 2005

    Investing: A macro perspective

    "The Sensex will hit 10,000 by year-end!" No, this is NOT our projection for the BSE-Sensex, so do not get unduly excited! But the point is that in these heady times where the markets have hit their all-time highs, one tends to get unduly over optimistic. One is often reminded of one of investment guru, Warren Buffet's investing 'mantras', that is, "be fearful when everyone is greedy and be greedy when everyone is fearful". At times like these, an investor can hear any number of people screaming themselves hoarse about how wonderful the India story is and how fundamentals remain strong and growth prospects are bright. "So-called market experts" go to town about how stock XYZ is a good investment and that "everyone is buying".

    Well, all we would say to this euphoria, or, to use a more sophisticated term, "irrational exuberance", is to ignore it! When everyone says that a particular company/industry is going to be "the next big thing FOR SURE", then it is most probably not going to be. An example is the tech bubble, where everyone and his uncle went hell-for-leather for tech stocks, thinking that they would keep posting 100% returns every year for eternity! Therefore, it is in such times that Warren Buffet makes the above-mentioned statements. Obviously, during the tech bubble, one had to be fearful and sell his/her holdings before getting swept away by the euphoria.

    We would like to get back to the basics here and just mention a few pointers to look for while investing. This is not with particular reference to any sectors, but a more macro perspective.

    • Political risk: Undoubtedly, this is one of the factors to take into account before investing on a macro level. The kind of government in power, either pro-reform or anti-reform, whether it is a coalition government, political will and so on are pointers to look at. For example, in a coalition government, with different factions having their own vested interests and agendas to pursue, the broader interests of the economy may not be their priority and often, economics gets sacrificed at the altar of politics, as can be seen in the case of the oil companies.

    • Economic growth: Of course, the kind of growth rate that the economy is clocking is another important factor to take into consideration. Sectors like steel, automotive, cement, oil and gas, banking and other highly economy-correlated sectors generally track the economic growth rate, plus or minus a few percentage points. Thus, taking into consideration the overall economic growth, one can then filter down the options to the sectors and then the respective companies. It should be noted that, regardless of the political party in power, the economy has always managed to clock a 6% to 7% growth rate over the past few years, making India among the fastest-growing economies in the world.

    • Future growth potential: This may seem like an obvious point, but every current and potential investor must consider the kind of future growth prospects that the economy has in general. This can be gauged from the demographic profile of the country. India, for example, has a majority of its population in the working age bracket. This augurs well, as more people will start working and the contribution to the national income will rise. This will also result in greater affluence and the willingness to spend more on consumer goods, entertainment, cars, travel, leisure and so on. The fact that the country has such a huge middle class population is a clear reflection of how lucrative a market this could be for companies from various sectors and accordingly, a decision can be made.

    • Fiscal situation: While growth prospects may be strong, the country's fiscal position must be considered. If the deficit is too high for comfort and the government is too profligate and does not seriously take steps to prune it, it will mean that greater borrowing will be needed to finance its expenses. This could result in crowding out of resources for the private sector and could hamper investment to that extent. The investment rate in the country is at around 25%-odd and in order to maintain a sustainable 8% plus GDP growth rate, this figure needs to increase substantially and hampering investment could constrain future growth.

    • Valuations: No question about it, this is the major factor to consider. It is the final stage of taking a decision. The country may have a stable polity, strong growth prospects and a lucrative market to tap, but if valuations are not attractive or enticing enough, then it would not be too sensible to pay too high a price. There is, undoubtedly, growth in this country, but the question is, how much are you willing to pay for that growth? Even if you buy the fundamentally best company in the stock markets, but pay too steep a price for it, your holding period will then be elongated and the payback period will be extended to that extent and you will then become a 'long-term investor' by default!

    Therefore, do consider these factors before taking the plunge in the markets. Of course, we have always believed that in such a market, where volatility is the order of the day, taking a stock-specific approach is always a better alternative than investing just on the basis of the Sensex levels. In fact, it is difficult to take a call on the indices as a whole and in any case, at levels nearing 9,000, valuations are not 'cheap'. Invest, but with caution!

     

     

    Equitymaster requests your view! Post a comment on "Investing: A macro perspective". 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!

    More
    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

    S&P BSE SENSEX


    Aug 22, 2017 (Close)

    MARKET STATS