The Silver Debt Lining

From the investors’ perspective, it’s a noisy time right now. Trying to make sense of the investment environment right now is like being in a room with five or six people, all talking simultaneously. One is concerned about interest rates, another with the falling rupee, and another with Europe. There’s someone who’s obsessed with political paralysis and someone else with the government’s revenue shortfalls and its fiscal woes. Another one is shouting at the top of his voice that all of India’s problems would be over if only Walmart were allowed to open stores here.

If you are looking to formulate an equation which will give you the solution for what for inputs to understand what’s happening, then it would have far too many variables to solve. However, there’s no need to do all that. As far as the equity markets are concerned, there’s one master variable that overrides everything else and can tell you whether it’s time for a sustained and secular equity rally; and that’s interest rates. We could see plenty little mood swings that depending on which side of the bed Angela Merkel got up from, but if you want the excitement to be sustained, then wait for a time when business across the board can get much cheaper money. If that doesn’t happen for five years, then that’s that.

Meanwhile, it’s best for investors to focus on the silver lining of this high-interest cloud, and that’s the return you are getting from fixed-income investments. From fixed deposits to post office to NSCs to PPF liquid funds, everything is fetching returns that look very attractive compared to the prospects of an equity-backed investment strategy. Deep believers in long-term equity can continue with their SIPs with a five or ten year perspective, but everyone else will see the value in knowing what their money will earn, safely.