The world markets are getting spooked by the new South African variant or perhaps even falling under their own weight, who knows? But the fact of the matter is that this has happened before. This is exactly the kind of panic that happened in 2020 as well. Are the markets going to react to the fall in the same fashion twice?
You are right in saying that it may be falling under its own weight as well. I think it is the variant plus the fact that the market has had such a good run that if we just give it one scare, people are happy to take some profit and wait for the market to bottom at which point they will go back in.
The point is that it feels like Groundhog Day which has run into years now but the template is very clear; that if there is going to be a variant which is going to cause a wide scale problem, then there will be support from the fiscal side and the measure we have been doing for last two or three years. The investors have to really focus on whether we have a real economy going forward. The answer is yes. When the reopening was so strong, we started talking about inflation. What that tells us is that the consumer and the economy is really strong and we just get things back every time there is a new variant or every time there is a lockdown, because we have to get more people vaccinated.
Those things just happen because they just happen to be and sometimes it is an error on part of individuals and government or policy error, but the key is to focus on the very strong economy. Again if we were to follow an easy money policy for another one year or two, because we have another variant, that also means that more money will be pushed through many businesses and cost of capital will be low. One can even have a bigger economy coming forward.
I have a very constructive view. I cannot say how low the market is going to go. That depends on the sellers and how they want to trade but for investors, I do not think there is anything to panic about because signs of economic revival are so strong that people have started talking about inflation.
Yes, they do. But the fact is that the fall may not be as much as what we saw in March 2020. Similarly, the recovery is also not going to be as deep. Do you think that for the remainder of the fiscal, one needs to tamper down expectations in terms of individual stock return or at an index level as well?
Possibly. It is very difficult to say what happens over a one or three-month period and if you are talking about fiscal, it is difficult to say and let us see what happens because the reactions have been very sharp and quick. This is where people should compare to what happened in 2020 where people were questioning if it was alright to wear masks.
Now there is absolutely no doubt that as soon as something happens, everyone is masked up, people are double vaccinated, people have got boosters. Europe is already talking about cutting air travel from the Southern African continent. So reactions are going to be very swift and we will see that being reflected in how the virus spreads. If it is a dangerous mutant, it will be checked much quicker. That makes me feel very positive that there might not be as big a downturn. Personally on a 12-month basis, this is not a concern for me.
Do you think markets are now getting to worry that the numbers that are priced in may not actually come in or it will be difficult for companies to deliver?
EPS does become a factor and businesses have to be profitable and deliver earnings. Given the rally in the Indian market, at some point people are going to stand by and say where are the earnings and whether these stocks or companies are going to deliver the earnings? If they do not, then they will sell some of those stocks, which is natural and healthy because you do not want the market to ramp up when earnings are not being delivered. That is when you get into bubble territory.
So, we will see what happens if the earnings come; if earnings do not come through, then stocks are going to fall. Second, the people generally get concerned about inflation and energy prices. One can see the oil prices are falling. That should be seen in a positive macro context for emerging markets.
If one takes these two things out, it is difficult for me to say whether they cancel out and end up being positive. I just think that there are many real businesses, real economic growth which are in store. I have written this in the past. I do believe that we are going to have roaring 20s. This time around with recovery, it will happen in emerging markets also.
If you look at the five-year story of where the growth is going to come from, that is not going to change. Growth is going to come from emerging markets and we have seen some very good things happening in the Indian markets both on policy and the business and the start-up side. I feel very positive. I am not concerned by what we are seeing now.
