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20 years of Liberalisation – Think Out of the Box for Indian Economy

January 25, 2012

The last few months we have seldom posted here except asking investors to stick to Large Caps during Blood Bath. The Goal of this Publication is to create long term wealth by means of investing in Equities and Related Instruments. Indian Liberalised Economy is now 2 decades old and Policies Matter a Lot. Hence this Brief Insight from our twenty plus years of experience on Dalal Street 🙂

How India was Run by Her Politicians ?
The old way of running India involved holding back expenditures in the initial years post General Elections and administering a blast of public expenditures in the pre-general election financial year. This model could support the Indian economy when it was small, closed and public sector capex dependent. Indian politicians have failed to grasp fully that the new Indian economy is large, open and private sector driven and hence cannot be primed at the will of the Government.

For example, most Parliamentarians from the Congress do not know the internals of how liberalisation and foreign capital helps the economy, but he broadly knows that foreign capital has stopped coming to India and he knows that that is a negative outcome.

Ears in the Parliament
DalalStreet Insiders in quest to know the Political attitude and vision for India as the Economy has chugged along in the last two decades and the same rules may not hold true in the current scenario. This lack of awareness could result in 6% becoming the new steady state rate of growth and persistently “low growth” could well be be India’s next economic crisis.

Our PM, Dr. Singh and FM Pranob Da are at the helm of affairs and have charted the new vision and constructive policies for India. Fiscal deficit of 5% in FY13 is likely to be delivered by the Finance Minister inspite of political pressure from the highest levels to be populist.

Breaking the Policy Paralysis
On this front, the first set of reforms is likely to be targeted at lifting market sentiment. For instance, the allotment of new banking licenses for non-industrial houses is perceived in New Delhi to be a reform that has powerful signalling abilities whilst involving no incremental cost to the exchequer.

What the Indian Economy Needs in the Long Run ?
The pressure on FM to finance populist schemes is unrelenting. The FM and his advisors realise that the only way such fiscal largesse can be financed is if India is able to return to 8% growth. To do so, both the PM and FM realise that they need to attract foreign capital and improve domestic business confidence through various FDI measures and through liberalisation of capital markets.

Performance of the Congress in UP Elections will either act as a Catalyst for the Economy if Congress Wins atleast 60 MLAs and a complete debacle and derail if Congress Number in the UP Assembly dips below 30.

Investment Strategy
It is unlikely that a derail will occur [our guesstimate] and hence one can stick to Bottom Up Stock Picking and BUYING the broader market at SENSEX less than 16,500.

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