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Should your investing depend on economic recovery?
Fri, 4 Dec Pre-Open

Going by the national and global economic developments, no one can accurately predict where the Indian economy is headed in the long run. However, if one recalls the recent events and takes into account the most probable outcome of upcoming ones, it can be said that the Indian economy is in the midst of a recovery. Unfortunately, the same set of observations can be used to paint a negative picture. Let's quickly go through both the types of observations.

Among the major concerns, following are the topical ones-

  • A fall witnessed in manufacturing and services sectors.
  • A fall in domestic demand due to poor monsoon.
  • Financial stress hindering the growth of the companies and
  • all in private sector investments.

On the other hand, these are some of the positives.

  • A growth in public investments.
  • A fall in inflation levels backed by lower input costs.
  • A rise in the level of real income as a result of lower fuel prices.
  • Reforms announced by the government to aid the deprived sectors.

Truth be told, at any given point in time, there will always be arguments both in favour as well as against the big macroeconomic picture. And therefore if a long term value investor pays heed to these, he will forever remain confused.

Having said that, ignoring macro economics completely is a mistake that long term value investors may not want to commit. While it does not make sense to defer investment in a solid and cheap stock due to short term economic concerns, the opposite may hold good. That is if solid and well managed capital goods and infrastructure companies in India are going through pain, the 'economy factor' may be playing a part. In such a case if investors find that companies are trading at a fraction of their true value, the near term economic concern may be a buying opportunity.

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Feb 23, 2018 (Close)