The first line of Rudyard Kipling’s poem about stoicism in the face of adversity has become an investment truism: “keep your head when all about you are losing theirs”
The first line of Rudyard Kipling’s poem about stoicism in the face of adversity has become an investment truism: “keep your head when all about you are losing theirs”
The first line of Rudyard Kipling’s poem about stoicism in the face of adversity has become an investment truism: “keep your head when all about you are losing theirs”
While often quoted in the aftermath of a deep bear market where, with the benefit of hindsight and after the deep feelings of fear have been replaced by disappointment at missing the subsequent recovery, it becomes obvious to everyone that the right course of action was in fact to buy while everyone else was rushing to sell.
This good piece of investment advice is important not just in the depths of a crisis, but also when people are losing their heads for the opposite reason, like while being swept up in a wave of euphoria.
India, and to a somewhat less euphoric extent Indonesia, have recently gone through elections which hold a lot of promise for investors. India’s stock market had already gained over 10% in two months expecting a Modi election, and rallied a further 10% in just a few days after the election win was confirmed.
Narendra Modi has an impressive track record on his economic policies while he was Chief Minister of the state of Gujarat, and is credited with achieving significant economic growth that far surpassed other Indian states. The obvious assumption by investors is that he will be able to transport these achievements on a much grander scale to the whole country.
In the midst of all this excitement it is easy to forget that just one year ago the whole country was in the midst of yet another crisis, culminating in a sharp -25% currency devaluation in the Indian Rupee in just four short months.
A year can be an eternity in the investment world, and Indian equities have vaulted to the top of many recommendation lists with predictions of +40% to +100% or more gains over the next few years, on top the gains already achieved this year. At times like this investors would be well served by heeding Kipling’s investment truism, and studying similar periods of financial history. There are plenty of such precedents, where predictions of a better life for all (and a significantly higher stock market) were made due to one person coming to power. These predictions are rarely, if ever, proven correct.
Investors should assess whether the new Indian government is likely to implement similarly impactful fundamental policies, creating significant positive change in the country’s economy and satisfying investors’ bullish expectations.
Judging by the first budget announced in early July, the initial verdict does not look promising. The local stock market sold off sharply in the next few trading days as expectations for grand policies were disappointed. While the market recovered in the following weeks, this is a good time to keep a cool head and assess the situation. Financial history of similar precedents is not on the side of the bulls, but despite this one would be hard pressed to find a single bear on India’s future economic and investment prospects at this juncture. Maybe “this time is different”. Or more likely the “sell dear, buy cheap” old rule of valuation still applies and investors’ high expectations will once again not be met by reality.
By LEONARDO DRAGO
Co-founder of AL Wealth Partners, an independent Singapore-based company providing investment and fund management services to endowments and family offices, and wealth-advisory services to accredited individual investors.