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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Thoughts on current situation

Posted by Muthu on August 11, 2019

Usually I write to you not less than once a month. This time there has been a gap due to some unavoidable reasons. Kindly accept my apologies.

In the beginning of 2018, all of you were very happy looking at your portfolio.

Last 20 months has changed the situation upside down.

The government in the last term was focused on providing basic but essential things like bank accounts, LPG, electricity, toilets etc. They did a decent job on this front. Balakot attacks saw a significant political will in defending the country’s security.  There were no terrorist bomb blasts across the country; which once used to be routine news.

Initially when demonetisation was done, many of us thought that as essential to fight corruption and black money.  In hindsight, the realisation is that it has caused more damage to the economy than the benefits it brought. In the name of clean up, also started was more instances of harassment by tax authorities. The government’s key focus became wealth distribution rather creation.

The expectation from the government second time was that they would focus on major economic reforms and wealth creation. This was based on Modi’s development record as Gujarat CM. Having focused on helping the poor in the first term, the natural expectation was creating prosperous economy in the second term.

Budget gave an opinion that this government is focused only on distributing wealth with no clue as to who would create it. It was anti wealth creators. Since this government never had a great economic track record to begin with, markets got afraid as to what is in store for the future.  Having realised the damage Budget has caused, the finance minister has started consultation with all stakeholders in the economy.

This is where we stand today. I don’t know how things would phase out from now on. The government with its brute majority may see no need for listening and course correction. Or Modi being identified as one of the pro development chief ministers in the past, there may be real course correction too.

George Bush senior won the Iraq war. He was very popular because of the same. Still he lost the elections as the economy was not doing well. Bill Clinton’s tenure was marked with controversies; still he won the election because economy was doing well.

Economy is less dependent on the government of the day. It’s a complex mechanism having its own life. Like markets or businesses, it also goes through cycles. At best a government can reduce the pain or incentivise the growth. It has no ability to prevent economic cycles.

If the government becomes responsive, the pain would get over sooner than later and we can explore if 8% growth is possible.

If the government continues with its dismal economic performance, recovery would still happen as a part of the economic cycle. Probably we may have to wait for a year or so for the same and accept 6% as our growth rate.

So it is clear, government can advance or postpone growth but cannot stop it. It can be a deciding factor between 6% or 8% growth; still we would continue to grow.

Assume the best and get ready for the worst. You would be fine in both the scenario.

Don’t try to time the market based on this. Market would never wait for actual growth to happen. It moves based on anticipation. This holds good for both upside and downside.

Since I’ve no reason to be a long term pessimist, I continue to be optimistic.

Stay the course.

6 Responses to “Thoughts on current situation”

  1. Sk said

    Already fully damaged. What is the worst case?

  2. Prasad Khanolkar said

    Wow.. Too good… What an article!!!!…sums up everything… A confidence and moral boosting article for we retail investors…

  3. R A Babji said

    Beautifully put the present scenario and reduced our pain..stay in the course.

  4. I think very right analysis. No government can provide growth as such. It can either hamper or support and incentivize growth through various policy initiatives, etc. Growth in a large and diverse country like us will happen irrespective of which government is there. As rightly put, it is the deciding factor between 6% to 8% growth. But this gap of 2 % is too big a growing and large economy like India.

  5. Subrato Mall said

    Really nice thought

  6. Really nice thought

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