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Be cautious of the economic turnaround story!
Wed, 13 Aug Pre-Open

The positive shift in the market sentiments are finally getting reflected in the economic fundamentals. If statistics are anything to suggest, the Indian economy seems to be on the path of recovery. In the driving seat of this revival is the industrial sector. Unlike in the past, the same has turned positive in the first two quarters of FY15. What gives further credibility to this turnaround story is the healthy performance in the first quarter of FY15.

While some have been crying foul over delayed monsoons, as per an article in Economic Times, the same has been a boom for construction. If all goes well, we might shed the stagnation and slowdown and GDP growth may inch well above 5%.

However, before we get over excited about the data, we need to keep in mind that this growth has come on a very low base. More than anything, it is the expectations regarding better policies and regulations that has brought this turn around. And if the Modi Government fails to deliver, it may hurt the growth story sand drag us back where we were few months ago. This is something that especially retail investors should keep in mind. At a time when all the statistics suggest growth and stock markets are also witnessing a bull run, it is difficult not to get carried away with the euphoria. However, while riding on this macro story, investors need to keenly watch the fundamentals and valuations. There are a lot of variables involved in the macro story, and a negative development in any of them, such as oil prices, exchange rates, Fed's stance on interest rates and so on could threaten the recovery. The only way to investors can shield themselves against such developments is to follow a disciplined investment approach.

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