Happy Diwali!

This Diwali, as we ponder over a 20% downturn in the markets compared to last Diwali, a few thoughts about the direction of the markets going forward.

The one determining factor that has been impacting the Indian markets over the last year or so has been the High Interest Rates regime. This has been due to the high inflation prevailing on account of the high Commodity prices. This is turn has been caused by the Quantitative Easing in the US which led to the easy liquidity flowing to speculative avenues of Commodities.

Investors in India have been speculating and worrying over the impending Greek default and similar problems in Europe. An often ignored perspective on the issue is that in a sadistic way, these problems are good from the Indian point of view. Slower growth in Europe would ease off Commodity prices leading to lower inflation which in turn would prompt the RBI to start cutting interest rates.

It has been noticed and well acknowledged that the Balance of the World Economy is gradually shifting from the Developed Markets (DM) to the Emerging Markets (EM). Growth of the World Economy is now in the hands of a few countries like India. The Centre of Gravity is definitely shifting from the West to the East.

Of course, we do not expect this to happen overnight. It would be a long drawn process over the next 5 – 10 – 15 years. Through this period, there would definitely be volatile periods which would offer entry opportunities to new investors in the Indian markets. All the structural parameters for long term growth are well and truly in place. But is our faith in our own country well and truly in place?