Developed World is No Longer Safe For Investors

Since the time the Euro Zone crisis unfolded, thereFor, the definition of risky is changing for global
has been a lot of talk about how the worries frommarkets and this gives us the comfort that India will
the Euro Zone or China for that matter have thebe able to raise the resources it needs to fund
potential to derail our recovery.growth.
While the Indian stock market is linked to globalMore importantly, we can pursue growth targets
flows, the Indian economy has less linkage to thefrom our own savings. The only problem is that often
global economy and continues to thrive on domesticour capex cycle is restricted by our inability to
consumption, demographic advantages and domesticexecute.
growth opportunities.When longstanding myths are shattered by harsh
Notwithstanding the marginal adverse impact of globalreality, it causes risk aversion. A generation was told
slowdown, Indian equity markets will get impacteda myth that developed economies are safe heaven.
adversely when FIIs sell to reduce the risk onIn a few countries, welfare policies of the
account of global developments. But, this will be onlygovernment became so strong and deep-rooted that
a short-term phenomenon.people forgot to work enough.
On the contrary, any market corrections due toIn global markets, investors are witnessing a
these developments will be beneficial for investors.six-sigma scenario. They did not build a model for
Investors need to look at these corrections assuch an event. Obviously, their survival instincts are
opportunities to participate in Indian equity market.pushing them to become risk averse. But many a
If one can take the short-term pain of volatility,times, people jump into the fire from the frying pan.
every correction driven by the global event will be aMaybe, most people will end up doing that by selling
great entry point for investors. Investors need to beemerging market assets in favour of developed
patient and wait to tide the volatility to gain for themarket assets. Only a small minority of smart and
long term.intelligent investors will recognise the power shift
The developed world has many issues to handle onfrom west to east.
growth and debt. They are likely to keep looseFrom an economy point of view notwithstanding the
monetary policy i.e high liquidity and low interest ratesfact that EU is India's largest trading partner, their
for a long period of time. The overseas debt hascrisis will have limited impact. We expect China to
become costlier for companies and countries whichsoftland its economy in FY11. It should have marginal
are likely to default.impact on us.
India has not defaulted to any one since the HarrapaFor, the Indian economy the worry continues to
Mohejondaro days. Unfortunately, rating agencies didremain around inflation, governance and reforms and,
not read history and gave Greece, which did notof course, the speed of execution. Our economy is
have strong credit history like us, a much highermore likely to get impacted by what happens in India
rating.rather than outside.
Now their myth is out in the open. Hopefully,In the short term, equity markets and economies can
investors world over will now realise that theirbe delinked. So, it is possible that Indian equity
perception of the developed world being safer andmarket will move in line with global markets especially
risk-free is no longer valid. The perception ofdue to the flow linkages. Apart from global flows,
emerging markets being risky is also not true.Indian equity markets may also get impacted by how
By definition, the US has become the largest debtorthe local economy responds to factors like monsoon,
to the world. It cannot be considered a safe heaven.inflation, fiscal deficit and interest rates.