While there is a reasonable amount of optimism going into the general elections in 2014, we tend to believe that progress will be slow. Reason: Significant change is required for the environment to kick-start again. For the last three years, there has been no relevant framework for business to participate in profits; also, several industries have surplus capacity and the pricing power has been weak. Once there is some visibility of improved demand and capacities getting utilised, capex will return to the economy. This needs a big shift in policy, which may not happen in the first year post-elections. Till then, growth in the environment will only be incremental.
Last year we saw pharma and IT give some spectacular returns. Given a weak internal economy and a weak currency, companies in these sectors became the top holdings in many portfolios. Also, many of these businesses continued to display robust executions in the global environment. A depreciating currency can give a competitive edge, but we believe that, in isolation, it will not lead to the fortunes or misfortunes of a company—it needs to build on this environment and create a dominant share for itself in its segment. It is important to see that the business itself is growing at a fast rate. Only then will the currency play work for you.
(This story appears in the 24 January, 2014 issue of Forbes India. To visit our Archives, click here.)