Just a word of caution.

Greek's fine capability to simply splurge money endangering Eurozone in quick sand, US's snail speeded economic recovery, China's secretive game plan, national political war, Iran's stubborn play leading the crude prices to space, ballooning fiscal deficit, enormous expectations from the budget. In short enormous UNCERTAINITY. Worst is not yet over.

Since the PIIGS issue became an intergral part of our global survival, I have pondered over the thought that, how big an economic catastrophic event can a small sovereign nation like Greece subject the world to. The answer always seemed foggy, since the Eurozone issue has transformed into something like a three dimensional chess. Seems very complex and mindblowingly complicated.

Another question that pops up in my mind is that when a common man who is in deep debt
(his entire monthly income also falls short to pay up his monthly interest payments), asks for more debt, how many banks are willing to provide him with more capital, with more debt? The answer would be none. Why? Because the banks have their risk management policies in place and they adhere to it while giving out loans. Do they follow the same policies while lending out to a sovereign nation? The answer is a painful no. Painful not just for the banks but for many throughout the globe. Why? Because the simple lending and relending fuels a small wave to become a massive tsunami which is quite disasterous to everyone around.

Now lets get back to how a small nation like Greece's debt issue is proving time and again to be so economically sensitive. The problem is that no one knows what will be the possible repurcussions on Greece and the domino effect on the other Eurozone nations as well as the global economy in case of default or for that matter even a bailout.

If it is bailed out by agreeing to the terms and conditions of trioka, Greece's debt to GDP ratio will come down from 160% to 120% by 2020. Still, is 120% of debt to GDP ratio sustainable? With severe austerity measures, will it be able to honor its future debt repayments? Its a big question mark, because chains of habit are too hard to be broken. The same habits that has got Greece to such a harsh fate. In order to bail out Greece, the private creditors have agreed to a 70% haircut for the Greek bonds. Can ECB do away with a 70% haircut? The answer is again a no because if will prompt other debtor nations to ask for a bailout too. And there are indeed other Eurozone nations standing in line for a possible bailout. Its quite messy and extremely frustrating.

Next comes US. Just a thought, how many of us actually remember US's debt woes amidst Eurozone's debt woes. I would say very few. Can ignorance at this level be a bliss? I say, ignorance in this case can be brutally fatal. US's debt has reached a level of 15.3 trillion, a level equal to its GDP and the economic recovery is frustratingly slow and the debt is expected to grow at a much faster rate than the GDP. The 2008 crisis led by Lehman was of mere $600 billion dollars and its repurcussions pushed US in such huge debt. Imagine a multifold severe crisis in US, even before people have come out of the 2008 crisis. My mind gives up because the severity will be exponentially dangerous.

Looking at China, I absolutely have no views, because of its secretive nature. The great wall of China was indeed built with a clear intention, not let the outsider know what is going on inside. I being an investor, would never put a single money in such a country, but unfortunately all don't think the same. Some of the greatest investors have their huge bets on China. But I believe in one thing, something that goes up rapidly have to face the strong forces of gravity. Now will it be a hard landing or a soft one for China, time will tell.

Coming back to us, India, like any globalized economy, is not immune to the global woes. In addition to it, there are many internal back drags. To begin with, we have an embarrassing political war going on, which puts India in a very bad shape in front of the world. This is a total dampener especially when we operate in a global economy and have to put our best foot forward to derive the maximum utility off this global reach. Our fiscal deficit for the first 9 months of the current financial year have already far exceeded the budgeted 4.6%, owing to the skyrocketing crude prices (owing to Libya unrest and now Iran's stubborn act), fuel subsidy, fertilizer subsidy and many more dampeners. The expectations from the forthcoming budget are at a peak, fulfilling all those peaked out expectations will indeed be a very difficult task.

In midst of all the gloom, I still bet high on India. But be cautious, place your bets carefully. Srategize by keeping the worst case scenario in your mind. Because, we unlike China are not dependent on exports, we have a huge internal demand to cater to. We need to harness that strength to derive the maximum growth. We can write our own fate and not let our fate be in someone else's hands. Play safe. Play well.

Happy Investing,

Purvi P. Shah