First published in Mint Sep 30, 2014

Now that the post-election euphoria is dying down and people have started analysing bullet-points in the speeches of leaders, this article performs a quick analysis of two different types of opinions – “Wait and watch!” and “The Great Indian party has begun!”. Today, the Wait-and-Watch group are the fence-sitters and are holding on to their liquid funds and cash. Even if they are aware that through SIP Mutual Funds at least, there is no wrong time to start off, they are holding on till things improve with a surety. Following each of these two different approaches will give Retail & HNI Investors different returns in their equity and hence overall portfolios, and could very well be the defining moment in their portfolio growth for the next 5-7 years! This article finally tilts in favour of the second opinion and offers the rationale for such a conclusion.

That part of the Investor community which is waiting and watching constitutes the “more stable type” of analysts who do not get swept by the euphoria of a movement or just go with the flow of things. These are people who have been proven right at some points of time in the past when things have flattered to deceive, especially where Indian polity and governance is concerned. They feel that right now, it might not be prudent to “speculate” on investing huge amounts into Indian equities, and we should do that when things become clearer for the long term.

The current rationale of this section of Investors comprises the following points :

• “We admit that the NDA government has come in with a huge majority, but let’s see if the PM is able to execute the vision of Development on his own. India is a complicated country, and there are diverse forces pulling things in different directions.
• There could be the classic Applicability issue, when the approach that worked for Gujarat may not work for India because of different forces at work. There could also be the classic Scalability issue, where the mode of working with few trusted bureaucrats may not work at national level because of a sheer more number of battles to fight – international trade, state-wise different land laws, non-NDA governments in states. Scalablity could also be a hurdle because of commercial solutions for 62 mn population not being implementable for 1.2 bn!
• Then, of course, there could be vested interests of some ministers and party functionaries who have come to national power after a long time and who might not be as clean as the PM and the top leadership team.
• Carrying the minorities and the lower caste segments of the population may not be the strongest point of this Govt, and that may cause social unrest, which could weaken the developmental work being done.
• Finally, the hard stance of the current Government on international issues (WTO) and neighbour relations (Pakistan) may boomerang through either marginalisation in case of the former, or the scarier prospect of border disputes in case of the latter. Either of these may have hugely disastrous impact on economy and development.”

However, this entire section of Investors may be missing the point that “Speculation” is not the same as “Betting on a majority Government”. This Government has shown enough INTENT in its early moves. And in the past few weeks, has now also shown its approach to EXECUTION in a few areas. The Intent has been shown through multiple swift moves :

• Fewer number of ministries and ministers
• De-bottlenecking of administrative and execution processes, by cutting number of signatures required for approvals of decisions
• IT-enabling of environmental clearance, which used to be one of the biggest stumbling blocks for large projects
• The Budget went slow on subsidies, more on development, and Infrastructure investments; Budget dedicated Rs 38,000 crore for road-building
• Mumbai-Delhi corridor work has re-started
• The Independence Day Speech expressed desire to make India the manufacturing hub for the world.

The new government has also started execution of a select few plans in a focused manner. The way in which the Jan Dhan Yojana project has been launched so swiftly is encouraging. Within 8 days of choosing the name of the plan through an online/Twitter poll, there is a smart and simple TV advertising campaign, an email’s gone from the PM to all senior officials of public sector banks, telecom companies have “agreed” to use the USSD-channel for mobile banking, a sales type project of mopping up 2 Cr bank accounts in 2 days has been launched. This is called 360-degree execution in corporate parlance. The hope is that all the INTENDED projects announced in Budget and Independence Day Speech will be EXECUTED in this manner over the coming weeks. 

Coming back to us Investors, there won’t be a single particular day when you can conclude that the Government is stable and is carrying out its plans systematically. And after that, you would start investing from that day, since the governance risk has been taken out. In fact, what we are going through currently might be the start of the journey of the nation back to regaining its pace of 8% pa growth, and then building on from there. Of course, Inflation is still untamed, and of course, Assembly elections in some key states are around the corner. But then, one can’t hope to dot all the i’s and cross all the t’s before one starts investing. The higher returns from investing in equities as compared to debt is because of the calculated risk that one is taking. We think that there is enough evidence already to suggest that the key risk from governance has been taken out to a large extent. And the ongoing upward trend of stock indices is part of a longer secular increasing march. Be Cautiously Optimistic if you may, but do not be unnecessarily Overly Cautious at this juncture. Having said all this, all boats won’t rise equally with such tides – get your research done on sectors, stocks and Mutual Funds to invest in. If you are even a wee bit unsure of these, then insist with your Financial Advisor to help you choose the best SIPs in MFs to invest with. If you have a perspective of five or more years to build wealth, then each day we do not act now, we are deciding to enter the markets at a higher level later. Remember, no one ever got to the top by sitting on their bottoms!