“When France sneezes, the rest of Europe catches a cold” is a nineteenth century quote attributed to Austrian Chancellor Klemens Von Metternich. Since then we have heard variants of this quote with the words ‘France’ and ‘Europe’ getting replaced most commonly with ‘the United States’ and ‘the rest of the world’. More recently as global markets entered into a tailspin, the focal point seems to have been a ‘sneeze’ from China.
It is human tendency to rely on causal reasoning to explain every event. As global markets took a nosedive recently, the most proximate cause attributed to the event was the woes in the Chinese stock markets. Interestingly on one of the local channels in India, a ‘market expert’ attributed the volatility even more specifically to the weak Chinese PMI data reading as the ‘real reason’ for the crash. Some to the devaluation of the Chinese Yuan.
Whatever might have been the so called ‘cause’ of the crash, it has reinforced the fact that India is not immune to shocks in global markets. Not quite surprisingly, the sentiment in the market also seems to define the popular perception about the effectiveness of the government’s economic policies. Immediately after the general elections last year it was widely held that India would embark on major structural reforms and the market zoomed in anticipation. In fact, we wrote in June last year that it would be naive to assume that the government would embark on economic B-HAGs (big hairy audacious goals) immediately after assuming office. Now as we speak to political and economic commentators the mood seems to have swung to the other extreme as a sense of fatigue and déjà vu has set in with this government.
As long term investors in the market, our view has been that as sentiment gyrates between extremes, the truth often lies somewhere in the middle. In this context it is worth cutting through the noise to look at five trends that characterise the current economic situation in India. In our opinion these trends, are not fleeting, and will gain further strength in the coming months and years.
