Year of Accumulation?

Shine is off from stocks. That is good and should be a welcome relief from the one-way reckless rally that has been ruling the roost for many months in a row. In a rare coincidence, multiple cues came together in a miraculous fashion to conspire a deadly blow to the bloated stocks. Global bond sell-off and tantrums on trade war couldn’t have come at a worse time. Just when the FM was lighting fire with his ill-thought LTCG tax (Long-term capital gains tax), global cues turned negative triggering a slump in Indian stocks. Macro fiscal worries from lavish MSP proposal and other rural largesse added to the ammunition with ten year yield Gsec yield spiking to levels not seen for many months.

All these are not completely unexpected except the eerie coincidence of all coming together. Market is hugely edgy and weighed down by uneasy calm. Weakness in the broader space should be a welcome development for seasoned stock pickers. If 2017 was an unstoppable one-way rally for much of the broader market, with volatility returning this year, 2018 should be viewed by serious investors as an opportune year for accumulation / portfolio building for an eventual breakout in 2019 when the economy starts reaping the rewards of series of structural reforms of past few years which will catapult the GDP growth rates to beyond 8%+.

“Structural reforms such as Bankruptcy code, RERA, Subsidy reforms thro DBT, Indirect tax reforms (GST), Financialization of savings, Inflation control etc. will drive the break-out for the economy from its badly stuck 7-7.5% range from FY20 onwards”

Investors should focus on portfolio construction and stock picking during
this period of volatility (because of weakening macro) by moving more additional investments into equities for benefiting from the eventual breakout that will play out from FY20 onwards. It is time to increase one’s equity exposure in a gradual fashion, not to lose bearings on paper losses.

Happy Value Investing!!

 

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