Recent downgrade of the US AAA ratings and persistent headlines from anemic peripheral European Union (EU) economies are flashpoints of the current market trauma. Global economic growth and confidence is sapping, leaving the global equity markets including ours into an unchartered territory. More than half of the global GDP growth is under stress and has little to cheer ahead. References in history to problems of such kind & magnitude are hard to find and hence there is no existing or proven growth template which the world can refer to.

This also does not mean that the global economic outlook will become darker and we would not see any light going ahead. Painful adjustments and coordination will be required to set things in order. The US and Euro region needs to make serious commitments to debt reduction, while China could help in terms of revaluation of its currency. In addition protectionism, political polarization should not take precedence over fruits of globalization which the world enjoyed in the last decade. So a new growth template is a necessity wherein the developed world takes a back seat while the developing world contributes more to the portfolio of global growth.

India in this context is hard to ignore and has to play a far more proactive role than it has done till date. India additionally is currently facing a lot of self induced problems in terms of policy paralysis, corruption being at life time high, inflation, interest rates and the list goes on. However within all this noise is a clear signal that the country is taking cognizance of the issues which we ignored for ages. Even if we partially succeed in making our systems transparent, a lot of growth will get captured in our economic balance sheet which till now was never noticed.

Having said all this there is no magic wand to our domestic problems or the problems faced by debt ridden economies. So while this new growth template takes time to shape up, equity markets like ours would continue to swing along with global markets and would keep investors jittery. Sensex has just lost more than 10% in recent downswing after almost 2 years of non performance. Going forward also, we expect more of a time based correction than the price wise correction and advise investors to stick with good and proven managements rather than leaving everything in frustration. In next few days we will share a more detailed update on the markets, sectors, stocks and our stance on the same.

Source: IciciDirect