Markets To Remain Positive

Dr Manmohan Singh has been criticised and blamed for the policy paralysis and the lack of economic reforms in the UPA’s second regime by almost all sections of the society, including the local and international media. He has apparently been a victim of the political circumstances that have developed as a result of the actions of Smt Sonia Gandhi as well as those of the former Finance Minister, Shri Pranab Mukherjee, who had derived substantial political power from Smt Gandhi by virtue of being looked upon as a crusader in sorting out internal and external political conflicts.

As soon as Shri Mukherjee was elevated to the post of President in June 2012, the Prime Minister took over the Finance portfolio himself and announced his intentions of attracting capital flows to prop up the rupee, carrying out aggressive tax enforcement, slashing subsidies and turning around the fortunes of mutual funds and insurance companies in an attempt to put the economy back on track. He advised the Finance ministry to reverse the climate of pessimism and revive the “animal spirit” of the economy.

The uncertainty surrounding the Indian economy was a result of the budget announcements made by Shri Pranab Mukherjee on 29th February, 2012. The main cause of frustration was the announcement of the controversial GAAR, which was to have retrospective effect. It put foreigners looking at India as a good investment destination on the backfoot. It majorly disappointed foreign investors, with the government losing credibility in their eyes. Also, there was no initiative for the investor or the industry in the budget.

Even after this, there were a number of financial scams which came to light in the CAG reports as well as through other means. Social activism forced the government to go slow on making decisions which would in all probability be highly scrutinised. There was complete policy paralysis at all levels of governance. Inflation and other worries kept on growing larger, and the economy was almost on the verge of a collapse.

All this pulled down the stock of the UPA II government, which hit a nadir. There was no more a fear of the downside, as it was almost at the bottom. This had a tremendous effect on the thought process of Smt Gandhi, who then asked Dr Singh to unleash the “animal spirit”.

On his part, the Prime Minister made immediate changes to the Cabinet, and the Finance portfolio was offered to Shri Chidambaram, who was aspiring to take up the post for a long time. Shri Chidambaram had promised the Prime Minister that he would reverse the negativity in the economy and turn the investment perception of India into the positives in a very short time. Since the last four weeks, he has been continuously working on various reforms. This has resulted in the PM announcing the opening up of FDI in multi-brand retail to foreign investors, enhancing the prices of diesel and the reducing subsidiary on LPG. The government seems to be moving quite fast on the disinvestment front too. It intends to raise an estimated Rs 79800-80000 crore from this process, which will help in bringing the fiscal deficit down from 5.6 per cent to 5.1 per cent approximately.

The sudden announcement of various reforms has surprised a lot of international investors. As has been observed by one of the PE investors, normally such announcements or changes are made when the government changes. However, Dalal Street Investment Journal had predicted this as soon as Shri Pranab Mukherjee was elected as the President of India, and since then, we have been quite positive on the market. As we said in our previous issue – It Is Tempting To Say “We Told You So”...

While the markets are looking up, one industry that has suffered for long, i.e. mutual funds, is likely to perk up. While we are sure that mutual fund houses would come up with new schemes for investors soon, it pays to consider the older ones that have already been in existence and have seen through the ups and downs of the markets. Our cover story this issue recommends eight best mutual fund schemes which are sure to add strength to your portfolio going forward.

Happy Investing!