BACKGROUND

For the last few days, all Indian equity indices including large cap have gone down. For example, Sensex which had touched a level of 40000 is trading around 38000 now.  Broader market including mid cap and small cap indices have shown a greater decline in the last one and a half years. Reason is the recent slowdown in the economy with consumption sector, which is generally a very strong and resilient sector of Indian economy, also showing signs of deceleration. Capital expenditure in any case has not picked up for quite some time.

ANALYSIS

The recent Budget was unconventional in the sense that rather than focussing on short term boost and incentives to specific sectors, it laid out a long term vision for the economy with the objective of holistic development.

Please refer to my budget note of July 7, 2019 . Just emphasizing again certain important aspects, for example, catching the next wave and grasping the major new trends will enable India to leapfrog. One example is long term energy policy which will not only lead to sustainable growth but also enhance the economy by saving significant amount of foreign exchange. There is very generous allocation for infrastructure development which will be a catalyst eventually for other important components of the economy. There is a very serious attempt to address the problems of the financial sector which will eventually ease the present credit squeeze.

Reforming angel tax is an important indicator of how the government wants to create a new set of entrepreneurs who will develop businesses on pure merit rather than on cronyism and patronage. Very important reforms of its previous term include GST and Insolvency & Bankruptcy code which are leading to emergence of tax abiding corporates.

Therefore the present period is more transitional in nature, where a new order which is cleaner and greener is emerging. I will characterize the present problems as a natural consequence of a major transformation happening.

RECOMMENDATION

I only recommend Equity for long term money and because of the important changes described above; long term becomes slightly longer term. The new order is being built on a strong foundation of level playing field, fair rules and ability and therefore will eventually give rise to a significant structural bull move. My strong recommendation will be to stay patient and resilient for the existing investments and use the dips to add to existing investments.  However, the rule of time horizon as always remains even more relevant- only money with a time horizon of 4 years or more should be invested in equities.