Home Minister Amit Shah on behalf of the government has made some big announcements today.

Let us first list them for you:

  • Article 370/35A stand scrapped
  • J&K state has been bifurcated
  • J&K will be a UT with a legislature
  • Ladakh will be a UT without legislature
  • Outsiders can buy land & conduct business in J&K

So, what does it mean to the Indian Economic scenario?

Imagine this, Indians will now be allowed to develop the region of Jammu, Kashmir & Ladakh at a far greater pace than what has been happening in the past.

And because of this, the region will be able to add much more to the Indian Economy than what it has been doing in the past.

Moving to the current financial scenario, the government has taken a few very strong steps in the recent past.

To some extent, we also believe that the government may have stretched it a little too far. But, saying this, it seems that the growth that we have been speaking off is surely not too far away.

Markets have been down by 8-9% from the highs of this year. Consider the ongoing fall in the prices in the stock markets; it is natural for any investor to be worried about their equity investments.

But let us draw your attention to something very important.

From 2002-03 to 2006-07, Nifty Earning Per Share (EPS) grew by almost 31% year on year and on the back of this growth, Nifty also grew by almost 37% year on year.

From 2007-08 to 2017-18 – Nifty EPS grew by around 5% year on year and due to sluggish growth in Nifty EPS, Nifty could grow by only 8% year on year.

Now starting from the year 2018-19, we have started seeing the growth in Nifty EPS coming back, it was almost 9% for the year 2018-19 and this happened:

  1. After 2 years of consolidation in the stock markets
  2. After almost 3 years of hard steps taken by the govt. to cleanse the system – Demonetization, GST, IBC code etc. etc.
  3. After 2 years of high NPA reporting, business sentiments going down and consumer sentiments going down

GROWTH IN NIFTY EPS WILL BE MORE SUSTAINABLE THIS TIME – likely to be in the range of 18 to 20% for the next few years, WHICH SHOULD ALLOW OUR PORTFOLIOS TO MULTIPLY OVER THE NEXT FEW YEARS.

Coming back to the negative returns over the last one year or so – we would like to say that if an asset class has the strength to deliver 50-60% or even 100% return in a year, it will test your patience at some point and there cannot be a better opportunity than the times of consolidation when you should just GRAB the opportunity presented.

And over and above this, we can see the turnaround happening soon, EPS growth coming back etc.

The million-dollar question – What Should We Do Now?

Well, for us, it is as simple as it gets, opportunities like these present a great opportunity to go shopping and buy good/great businesses at a bargain.

We strongly feel the markets should rejoice at this point. And yes, if the government is showing that it is wanting to take strong steps, we also believe it will stick to its target of making India a $5 trillion economy.

We would like to end with the extremely famous Warren Buffet saying:

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”