The hype, the party and the hangover

It is not easy to resist falling prey to hype.

Over the last 4-5 years, India became a much hyped country.
Tailwinds were strong.
Interest rates were low.
Inflation was benign.
Domestic capacity was adequate to meet rising demand.
Riding on such benign conditions, India recorded 4-5 years of high growth.
The economy boomed.
Incomes started rising.
Corporate profits rocketed.
Asset prices rose; stocks rose, real estate rose.
Every investor became a genius.

Lets party, said the people.
So the party began.
People danced to the music.
Drinks flowed like water.
Everyone was happy and cheerful.
And also drunk.

India had arrived, the experts claimed.
We will become an economic superpower, they asserted.
No one can afford to ignore us, they said.
We thought we had become a asset class in ourselves.
Foreigners threw money at our stocks and stock valuations went higher.
Lets party more, we said to ourselves.

And we did party harder.
And got high on our own success.
Till one fine day.
The DJ stopped the music.
No more drinks, said the bartender.
The party came to an abrupt end.

A few wise men had already left the party.
A few others took the cues and started leaving too.
The rest stayed on and protested.
We want the party to continue, they exclaimed.
We demand more music and more drinks, they said.
But all the huffing and puffing could not start the party again.

Some said that the party would start soon.
Others advised people to wait for a 'longer' period.
But the party simply would not resume.
And the effect of the liberal drinking and wild dancing started showing up.
Those who chose to stay had a severe bout of hangover from the drinking.
And sore muscles from the excess dancing.
It will take time for the hangover to go away.
It will take time for the untoned muscles to recover again.
Till that time there will be pain and misery.

We fell prey to hype.
Some had shouted BRIC.
Some had shouted Great Growth Story.
Some had shouted decoupling.
Some had shouted domestic consumption.
And we believed every word of it.
All of the above is true to some extent.
But not to the extent the consensus thought.
Potential exists, that woud make investors money.
Hype simply leads to ruined plans and shattered dreams.

Every upswing sows the seeds of its own demise.
And a downswing follows as upswing.
India would continue to grow.
But not at 10% per annum.
Beneficial external conditions and excess capacities lulled us into believing that 9% growth was a given.
And that investing was the easiest game around.
That investing did not require any skill, experience or hard work.

When external conditions start acting like headwinds, they put the brakes on growth.
Inherently, we do not have the ability to grow at such high rates for ever.
Not enough infrastructure, not enough political ability, not enough maturity among ourselves.
So not enough returns from stocks.

We should have avoided hype when there was such.
We should continue to avoid it.

But things are not gloomy at all.
Foreign money drives our stock markets.
Foreign money will come back again.
History suggests it behaves exactly the same way time after time.
Foreign money is not neccessarily smart money.
It will come again.
India will become hype again.
Spring follows Winter.

Be ready for Spring.
Be ready with your money.
Be ready to ride the hype again.
But dont fall prey to it at the end.
You can again make a lot of money.