I am still not fully convinced by the single day unleashing of reform to make up for the policy paralysis that has been the signature for UPA2. I have several questions for this sudden burst of optimism.
1). When a govt, ridden with corruption scandals, with severe policy paralysis, all of a sudden, on a fine day, decide to release the secret cure-for-all reform agenda, I am compelled to ask, why is UPA2 doing this now? why it didn’t take the same decision in last 3 years. Isn’t it a gimmick to move away the current topic of discussion on corruption to something else.
2). With allies like Mamata Banerjee hell bend on stopping reform like FDI in retail, and threatening to pull out from UPA2, and opportunistic ally like Mulayam’s SP, wanting to ride on the pro-SP feeling of UP, the existence of UPA2 is at stake. If there are no UPA2, then what is the point of reform.
3). Diesel price hike, tends to have a strong inflationary effect on economy, so does inflow of money via FDI. There are rumor of rate cut on Monday. With inflation already at 7-8%, I am thinking where the inflation figure will go up post reform, and for how much time the rate cut can be sustained.
4). With opposition hell bend on opposing retail FDI (some points of which I agree with, like widespread manufacturing reform a must before allowing foreign FDI in retail), I doubt the fate of these reform post UPA2 time frame.
5). I am very skeptical of things which are easy to do, or sudden change in policy. History tells us that what became the fate of USSR, post economic shock treatment. I like slow, and difficult path to achieve reform. They tends to have a long lasting positive effects.
6). Allowing FDI in sector plagued with issues, and hoping it will solve the issue, is like giving analgesics to a malaria patient and hoping it treat it. Govt need to analysis the fundamental reason behind those issues, and enact reforms to solve them. That would be permanent solution to it. All other are just eye-wash to me.
Hence, in short term, I see investing opportunity in capital intensive sector like infra, auto, aviation. But in long term, stocks with solid fundamental behind them will be the winner.