The good news is that the economy grew at 7.2 per cent in the third quarter, and the CSO (Central Statistics Office ) expects the full-year growth to be 6.6 per cent. This makes it one of the fastest-growing economies in the world, and a source of attraction for global investors.

And yet, investors should reflect on some of the key risk factors before investing in the market.

Though the GDP data presents a healthy picture, the growth is not evenly balanced.

Some sectors are doing well: car sales in February were up 12.4 per cent, largely driven by demand from non-metros. But a few other sectors are not: for example, the telecom sector, hitherto dependent on revenue from ‘voice’ and unable to compete with Reliance Jio, whose technology allows it to offer voice for free, using the Internet. One of the telcos has already filed for bankruptcy and, should this spread, the banking industry, which is already reeling under the impact of NPAs, will be in serious trouble.

Besides telecom, one of the erstwhile booming sector was IT services. The Trump presidency has made it harder for this sector as he wants more jobs for Americans. Consequently, hiring and growth in this sector is subdued. Cognizant has reduced headcount by 8,000, but has added 2,900 jobs in the US, and 2,300 in Europe, both high-cost regions, which will obviously squeeze its margins.

Fiscal deficit: Lower-than-expected tax collections from GST and higher-than-expected expenditure have had a cascading effect on fiscal deficit. By January 18, fiscal deficit had already overshot the full-year target by 14 per cent. With general elections due in 2019, fiscal prudence will be, as Margaret Mitchell would put it, gone with the wind.

Crude oil prices: Prices of crude oil have risen, to nearly $65 a barrel. Saudi Arabia desires a higher price to raise more money from its planned 5 per cent sale of Saudi Aramco. It looks like the US is cooperating by not hiking shale oil production. This would do two things. One, increase the current account deficit (and weaken the rupee) and two suck out money from secondary markets to invest in Saudi Aramco. Higher crude prices will also stoke inflation.

The threat of rising protectionism: Donald Trump has no idea of the theory of competitive advantage. He is tearing up painfully constructed multilateral and bilateral trade treaties and has imposed import tariffs on several items. Other countries will retaliate. Which means that inflation will rise, globally, to counter which interest rates will rise. Higher interest rates cause money to be transferred from riskier equity markets into safer debt markets. India had seen heavy selling by FIIs in February.

So far, domestic flow from retail investors has kept the fall in check, but since most new retail investors have not seen a bear market, they will need either a strong conviction or a good stock of adult diapers when they see one.

All things considered, it might be sensible to consider getting a bit light.

(The writer is India Head — Finance Asia/Haymarket. The views are personal.)

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