The Real drivers of Investment themes......

Today there is too much of talk about India's consumption story. Rationale — 7% GDP growth, financial inclusion, low interest rates and no dependence on exports. This is probably the most-talked about theme in Indian equities market now.  But the stock market performance is an altogether different ballgame. Themes can help investors identify big wealth creation ideas, but playing themes is not easy. Blindly following themes can prove wrong.

                


Down the line the Indian equity markets saw many such themes playing out:

1. Replacement cost theory: The first bull market started with Harshad Mehta’s replacement cost theory which argued that old and depreciated companies ought to be valued on the basis of the cost of replacing them. Using leverage stock prices were rigged to the sky.

2. Dotcom theme: The new millennium brought with it the ‘new economy’ stocks. Information technology, communications and entertainment (ICE) was the theme in 2000. But there were more disasters than outperformers in the business. For the investors in those days, anything that carried a dot com. And eventually stocks were manipulated.

3. Infrastructure & power theme:

From 2003 onwards, Indian stock markets primarily moved around infrastructure theme. Global investors on the back of low interest rates got into the carry trades. Borrowing in a weak currency such as the yen with very low interest rates and investing in a country such as India with a strong currency with potential to earn superior return turned out to be the most important strategy for foreign money. At this point Reliance power reached dizzying heights in stock market.

4. Domestic consumption theory: Today, investors are of the view that the India growth story is intact and the middle class disposable income is growing, which will lead to more spending. So, whether it is white goods like air-conditioners, refrigerators or plasma TVs or eating at restaurants or eating pizzas, or spending a nice holiday, the consumer is going to spend money.

So, than blindly buying any theme may be risky as the popular themes in most cases price in growth prospects. It is better to take a stock-specific approach looking at growth in light of valuations....don't you think so people......