I have been quite worried and am still so as to the short-term prospects for the Indian equity markets. In the short term the worries are many - the global slowdown, the possibility of our economy getting overheated, the slow pace of reform, huge market gains over the last three years and the lack of valuation support.
These issues have been bothering me for some time and continue to do so. We can have and most likely will have another correction in the markets, which can cool things down, but that will be in the short term.
However, having been recently given a mandate to look at stocks with a genuine 3- to 5-year view, the picture and nervousness change quite dramatically. There is little doubt in my mind that the country is transforming, and if you are willing to take a three-year bet, ideas abound. The longer you extend your time horizon, the more the feeling of the markets being too expensive fades.
What lies at the root of my optimism are the changes evident in both manufacturing and agriculture. The services story in India is very well-known, and it will undoubtedly be a strong growth engine, but on the margin the growth surprises will come from elsewhere.
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