As any news of fresh breakout of crisis in Europe or data about the economic slowdown in the US send the Indian stocks diving for cover, fears of 2003 or 2008 crisis coming back haunt the investors.

There are some reasons specific to India — the virtual policy paralysis at the Government level, permitting FDI in retail or liberalising the insurance sector further, recent decision making coal companies share 26 per cent of profit with locals — that spooked metal stocks on Friday. The high interest rates have also undermined investor confidence in stock market.

A look at the BSE Sensex, NSE Nifty, Junior Nifty would show that a good number of fundamentally strong stocks in various sectors, or even stocks outside the main indices, have shed 30-50 per cent of value in the past one year. Their PE ratios have dropped to single digits. The loss in share value appears to be disproportionate to any perceived impact a slowdown would have on the financial results of the companies over a longer period. In some cases, companies have done better so far this year than the corresponding period last year, yet their share prices have dropped.

Despite this fall in stock values, it is time to invest in equities. Here is why.

Apart from the fact that there is no investment tool better equipped than stocks to beat inflation in the long run, Indians are also riding the wave of so many favourable factors that probably not many other countries are enjoying. This offers them a cushion against any temporary setback in their stock investments. Some of the perennial investment favourites of Indians are having the best of times — real estate, gold, bank fixed deposits. And with a favourable demographic wind blowing, these investments may continue to give good returns.

But the most important difference over the two earlier crisis periods appears to be that the fears of losing jobs or suffering a cut in earnings seem to be far removed.

The Indian growth story is not restricted to select sectors such as IT or ITES but is more inclusive now with the manufacturing sector too benefiting from the outsourcing boom. The increase in land and commodity prices has created new rural millionaires and this is reflected in the consumption growth lifestyle goods are witnessing.

If it was inflation that was the bugbear of the Indians for close to two years, leading to continuous rise in interest rates, with the falling commodity prices, particularly crude, there are signs that inflation may moderate in coming months leading to softening of interest rates. This will reflect not only on the bottom-line of the companies but also on the disposable income of investors.

While it could be risky to apply the overall auto numbers for September to other industries for drawing conclusions about Q2 performance, the robust performance of carmakers show that they have reasons to celebrate. The numbers would have a cascading impact on other industries that cater to the sector. When the interest rates begin to decline, the going would only get better for the auto pack, lifting the fortunes of dependent sectors as well.

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