The subject of interest to me is how to ascertain all types of risks in the context of our Indian market from different conceivable angles. For this, I do keep track of major macro indicators and it is one of the many factors I look for assessing risk. I would like to argue here in favor of my Macro Watch as I think many factors affect investments returns even when a business (read stock) is performing well.

Can macro risk affect individual stocks? Is it important? ---- I find, a lot of Value Investor find macroeconomics analysis is a "fool's errand" but I think these thought processes were developed and practised in USA in a non-globalized era. To use it in Indian context (an insignificant third world country) and in a globalized era for a FII dependent market we can't ignore the macro factors like INR / USD rates, CAD situation, Bilateral and multilateral trade agreements, GDP growth rate, international interest rates, political / social / economic stability etc.

Let me give some examples..... Many companies gone from "hero to zero" or had to withstand excruciating period of pain in 2007 to 2012 period when INR depreciated from Rs. 40/- to Rs. 55/- due to their ECB (External Commercial Borrowing) exposure (Aban Offshore, DRL, 3i Infotech, Usha Martin, Uttam Galva, Jubiliant Life Science, Motherson Sumi, Bharat Forge, Rain Commodities, Mercator Lines, Gujarat NRE Coke, Auro Pharma etc to name a few) .... Quite a few have surely bounced back very smartly but if you analyze full list, many just perished in that episode.

It may not be irrelevant to share a personal experience.... During 1997 - 2000, for a period, I was posted in Bangkok and entire Thai Baht crises happened suddenly in a matter of 15 - 20 days when companies closed shop, winded operation and dismissed people overnight and INR appreciated against Baht by 100% within one month. During this period Tata, Usha Martin, Indo Rama (which I know about and few more possibly) bought assets at prices 50% to 75% less than their book value (in US$ / Baht terms) very very quickly by leveraging heavily taking dollar loans (as their Balance sheets were bankable to foreign lenders) ..... Just in 6 months entire business scenario from ownership point of view changed for many Thai and Indonesian companies. Suddenly companies stopped trading in stock market and never reappeared. I was involved in two deals and seen the distress of selling promoters and portfolio managers first hand. If you analyse the problem, it was a political, military and macroeconomic problem as withdrawal of credit lines and calling back of loans by banks happened due to specific strictures from IMF and had absolutely nothing to do with individual companies. From then on I started realizing the importance of focusing on macro issues as economic vulnerability of developing countries increased manifold due to globalization of money flow and lack of military muscle. Any economic rule at times of crises are enforced by muscle power and not by economic rationale. Read about crises of Argentina which happened previous to it. And you may think through how India withstood the contagion risk from a neighboring country in 1997 but failed to come out of 2008 Lehman crisis even after 8 years of its happening?

Let me elaborate another live example of macro instability which may be unrelated to any specific business --- Indian northern belt is having highest proportion of youth population and worst sex ratio. Almost 50% + of this population is functionally illiterate, unemployable in modern business, grown up in a strange casteist societies and generally bit aggressive in outward behaviour. Now imagine this population passing through their best periods of life with aspiration, without a job to remotely meet these aspirations and no woman in their lives to channelize the emotions and physical needs (north India sex ratio is 1000 to 800 almost) ..... Now add to this, all sorts of extreme ideas which are phoney, perverted and spurious are pumped in by political establishments or ideologues of assorted varieties on these youths to polarize the vote based politics of "first past the post” into different groups based on their perceived "selfish" conveniences ...... How this heady cocktail can play out in the economic scenario? Add to that the extreme inequality an average ill educated and malnourished youth experiences every day and reasons for which he may not have an iota of idea! ....... All these won't add up in any positive way I suppose.

Maoist, Jats, Patidars, Bodo,, North East, Kashmir, Minority, Mathura violence --- India has too many problems which are fiendishly complex and any one of the above can have a contagion effect at any point of time (remember Mandal Commission) unless we keep a fine balance in mediation and negotiation and power display as we are also surrounded by two adversarial countries out of which one is politically, socially and militarily much more powerful than us.

Think through other risks like Environment / Water / Clean Air / Healthcare / Drought / Disaster Management Response (Chennai Flood, Uttaranchal Fire, Kedarnath Earthquake are recent major examples). Our unpreparedness for emergency response on one side and lack of meaningful and holistic development on the other can give some pointers to macro concerns ..... Can a business operate and can investments pour in without paying any premium for these risks? How these risks are embedded in business?

My spiel may sound meaningless or remote to many younger people and also to many others who are only in stock investment in India for last 8 - 10 years or so but to me "event risk" for India are many and it's increasing in social / political level more than what gets captured through economic data. But as a very resilient country we would overcome these with our collective sagacity and past records. But we can’t completely disregard these.

Your valued and reasoned comments will help us learn together.