A market, where valuations are cheap and fiscal policy and monetary policy are accommodative, is well set for a favourable outcome over the long term. That is my lesson from 2009 and the crises before that. But there is no model than can give us a timeline or speed forecast for how the markets
will behave. As a caveat, also note that while equites have experienced a sharp valuation cut and are in the attractive zone, they have not dropped to the valuation lows witnessed during the global financial crisis in 2008-09.
The RBI has taken aggressive steps to address the growth challenge to the economy and ensure adequate liquidity within the system. The framework and timeline for debt forbearance may require further tweaks, including sector-specific policies. The government response in India has so far largely addressed humanitarian issues. More intervention may be required both in terms of social security, direct transfers and eventually further fiscal intervention to stimulate the economy. Households and firms are likely to exhibit a risk-averse behavior in the current environment. Under the circumstances, the Keynesian case for expansion of government spending and policy intervention is supportive. The fiscal deficit... is less of a constraint in this context.
My lesson from the past is that one should not be reactive – it is your actions before the crisis and volatility that are most crucial. Our focus, as always, is on what is in our control – the investment process and disciplined review of our holdings and risk management.
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