Growth Overrated?

I am now full short on the Nifty. LTT, which has 1/3 weight in my book, was already short. The STT, which has 2/3 weight, was long. But I cut my long positions and went short when Nifty dropped below 5494. The STT now turns into a buy if Nifty crosses 5536. The long positions therefore lost 32 points (5525-5493). Now I am short and sweating because the RBI policy on Thursday can lead to a violent move in either direction.

The key driver for the fall in the markets seems to be the fear of a drop in economic growth and consequently growth in corporate earnings. Naturally, if the market had priced in a certain growth rate, any expectation of a dip in growth rates will lead to a fall in the share price. This brings me to something that I have been introspecting on. (I tell you, this bad habit of mine will be my undoing someday. But then do not blame me, the markets have been so boring that I have a lot of time in my hands for this activity).

I want to say that Growth is Overrated. For a moment let us stop thinking about markets and look at the bigger picture. Nature abhors continuous growth. Clearly cycles exist in nature. A human being grows till the age of 15-20 and then stops. He does not keep growing. Nothing in nature continues to grow forever. Growth in Nature is regulated and finite. When some cells break these rules and try to grow infinitely we have an affliction commonly known as CANCER.

Economic growth is good but when growth for the sake of growth becomes the stated policy of the state then it leads to dangerous strategic decisions. Growth obfuscates, breeds complacency, covers up errors, leads to wastage and short term focus on growth typically ends up borrowing it from the future. Doesn't deficit financing end up doing just that i.e borrowing growth from the future? Deficit financing was considered to be a method to kick start growth but the unregulated growth of deficits across the world makes it clear that what we have actually done is akin to unregulated growth in the cells of the human body.

The same is true for companies. We are all aware of companies which have succumbed to the perceived expectation of the stock market and tried to achieve the impossible-- quarter on quarter of consistent high growth. The increased expenditure, the unregulated growth in employees, increased debt and finally increased costs have only resulted in pain in future.

So what according to me should be the focus for any company? I expect that the company focus on core strengths and try to give the best possible product/service to the client. All strategic decisions should have customer and their product as the focus. Any growth should be a consequence/derivative of all the right strategic decisions made by the company and not the driver of all strategic decisions. Growth should be a natural result, a happy by product and a bonus of the right policies.

As an analyst when you hear a company talking about growth, I suggest you run away from it. Sell it to the next available buyer. When a company talks with passion about its products and its customers, bet on it..

BTW, I talk with a lot of passion about my trading systems and very little about GROWTH in my trading profits for the company. Ram/Jacob, (the co-owners of MAPE, in case you did not know) going by what I just wrote, you need to continue to bet on me!

Current Position:           STT  Short from 5494, LTT Short
Probable trades:           STT Cut short positions and go long > 5536
                                    LTT Cut short positions and go long > 5610