The global economy has been grappling with the slowdown in world’s major drivers of growth - the Europe and the United States of America. With the former being almost on the verge of a breakdown and the latter unable to sustain growth; the Emerging Nations like India too, are going through a rough patch.

Taking privy of the above situation, the Chief Economic Advisor - Mr Kaushik Basu warned that if the Eurozone breaks up finally, it will be more disastrous than the 2008 global financial crisis triggered by the fall of the Wall Street banks, from which the global economy is yet to recover. He even reiterated that if the Europe slips into a crisis, it is going to be a very difficult time and there is no escaping from that.

Mr Basu cautioned that a deeper European crisis was not impossible, and that there would be a jolt and it could spin Europe into a big crisis. He stated that, "Though we (Government and the Reserve Bank) have a team that is working on different scenarios, to see how we will react, it will be a lie to say that we have the strength to weather that. It will hit us in the face." Explaining the rationale for his fear on the global front, Mr Basu said the problem will arise in 2014, when the LTRO (Long Term Refinancing Operations) of the European Central Bank (ECB) payback comes in December 2014 and February 2015, when as much USD 1.3 trillion need to be paid by 800 banks to the ECB. This will sap the entire banking system, he warned. However, Mr Basu expressed hope that by 2015, the world economy - especially the Emerging Economies, will be better off by that time. He said "the emerging economies are in a position to build strength (during this interval) so when we come out of this tunnel we will be at the top of it." Moreover, Mr Basu specified that Europe is no longer India’s biggest export destination, Middle East is where India probably exports more today.

Our view:

In our opinion the Emerging Nations are bound to get affected in a scenario where the global drivers of growth slowdown. Moreover, in the absence of decoupling of Emerging Nations from the rest of the world, Mr Basu’s concerns are justified. No doubt that India has a resilient banking system with robust regulations in place from the Reserve Bank of India, but it cannot completely shield itself in case of a global turmoil.

However, investors need not worry and panic. Yes, those who do not follow any investment strategy and just go by what their friends, relatives, agents or distributors have to say are really in trouble because no one knows the exact date of a crisis taking place. On the other hand, those (investors) following a well laid out investment strategy based on their financial plan will be in a better position to shield their portfolio from the turbulent times provided portfolio rebalancing has been taken care-off.

Even at present, if you don’t have an investment strategy in place make sure you start investing in a phased manner. And if you are not comfortable to invest directly in the equity markets or lack the required expertise, then adopt the mutual fund route to the equity markets. However, in order to sail well in turbulent times such as these, we recommend one to opt for the SIP (Systematic Investment Plan) mode of investing, as it will enable you to mitigate the volatility through rupee-cost averaging and power your portfolio with the benefit of compounding. However, while selecting mutual funds for your portfolio prefer the diversified equity funds (preferably which adopt value style of investing or the opportunities style of investing) which follow strong investment processes and systems, and invest with a long-term horizon of at least 5 years.

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