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Should reforms change your investment outlook?
Mon, 27 Oct Pre-Open

The government has already pushed the accelerator on some key economic reforms that were long awaited. Further, with the recent assembly elections too being largely in BJP's favour it is believed that there are some big ticket and bold reforms in the pipeline. The most recent step taken is the deregulation of the diesel prices.

The Modi government's agenda comprises of various big steps. The key ones being - to revive foreign investments, the auction of coal blocks, insurance legislation, labour reforms, implementation of the goods and services tax (GST), a coherent strategy on inflation, and so on.

The market sentiments have taken this approach of government quite positively and of course some economic green shoots are already visible on this front. However, it is bit early to judge on this. One should note, only announcements will hardly make a difference unless implementation follows. And readers would recognize the fact that the India has a poor track record for the latter. Bureaucratic delays, land acquisition issues, high corruption, crony capitalism and labour issues among others have plagued the Indian economy for years. The new Government cannot wave a magic wand to make them disappear soon. Thiss, keeping in mind the messy legacy it has been left with. Expecting a quick fix for decade long economic issues seems to be unrealistic. Over and above, even if the reforms are implemented , it will take at least a period of three years the same can start reflecting in economic activity and GDP growth.

Hence, we would suggest investors not to get carried away by the big tickets announcements. Yes, these are indications of a possible Megatrend in the making. However, your selection of stocks cannot be randomly based on the areas where reforms are taking place. Hence, we recommend investors to be realistic and follow bottom up approach in selecting stocks, from a long term perspective. Further, in order to minimize risks associated with equity investing, investors must stick to the ideal asset allocation.

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