Indian economy is at cross roads today when its suddenly being compared with 1991 situation when India had to pledge Gold to borrow foreign exchange. The GDP growth rates have dipped down to 5.3% (the lowest rate in last 9 years) with high inflation rates at 7.4% , raising an unprecedented  spectre of stagflation in India. The current account rate is at 4% which has been one of the highest ever and Rupee has depreciated by > 10% in the year.

Why and how did we reach this situation? Should we “blame it on Rio” as the govt. is attempting to do by blaming Greece and Euro debt crisis? I  think that most of the causes start and stop at our doors . RBI’s aggressive monetary tightening stance , Policy and reform paralysis of the govt., lack of proactive managemnt of fiscal and current account deficits, stubborn inflation are the key domestic reasons for the current economical situation . These domestic factors along with Euro debt crisis led to foreign investors turning risk averse and withdrawing their hot money to safer heavens which in turn led to stock markets crash as well as currency depreciation.

Should we invest in these times in Indian markets? Responses to the below questions would help us get clear answers to the question. 

Are these root causes of the current situation temporary or structural in nature? 
They are temporary in nature

Are the consequences or implications of these causes predictable & controllable?
The consequences of all the mentioned causes are predictable and controllable except the scenario of a disorderly Greece Exit from Euro-zone which can lead to a contagion on other PIIGS govt bonds and run on banks. Hopefully , it wont happen.

Is there any permanent dent in the Indian long term growth story? Not at all . The Indian Tiger has been freed and it will run fast irrespective of the governments. Indian growth story will continue to remain the key story of the 21st century.

Have we bottomed out or near the bottom in economical cycle?
We have nearly bottomed out as far as domestic factors are concerned. In case of Greece dis-orderly exit , we may go down by 10% or more . However its impossible to time the market and hence its still good time to invest.

Is this time to bottomfish?
Yes it is. Go for the fundamentally strong and profitable businesses with great management and strong balancesheets, available at attractive prices. The valuations/ prices of some of these businesses are very lucrative today and we can start buying them in installments at every dip for the next few months.

What are few of the sectors and stocks to watch out or invest?
My favourite sectors are the badly beaten down sectors like interest rate sensitive sectors , e.g.Banking and Finance, Auto, capital goods , infrastucture etc. In these sectors , one ought to chose the best of the breed businesses with strong business and financial track record, revenue visibility, strong balance sheets and competent managements. Some of these companies are the same ones I had called out in blog titled “my 2012 forecast and Top 10 stocks ” . The key ones I would put my money right now are businesses like “Axis bank”, “Bank of Baroda”, “M&M”, “BHEL”, “L&T”, “REC” and “GAIL”.

The times ahead could be more troublesome with markets dipping by another 10%-15% if we have the Greece and Euro debt crisis going out of control. Hence we should be buying these businesses in installments at every dip in next few months , rather than putting all money in one go.

Keep your conviction on the Indian long term story and invest for long term.

Happy investing!

cheers
Amar