Devendra Nevgi, CEO & CIO, Quantum Mutual Fund
What will 2009 be like?
It's likely to be a year of caution and safety. Expect more regulatory tightening, especially on corporate governance and disclosure standards in India.
The world has changed in 2008 and probably will continue that way at least for the first few quarters of 2009.
Bail outs and pump priming worldwide would continue to stretch the balance sheets of central banks and the governments. Central banks would continue cutting rates globally, to stimulate demand to bring back the beleaguered economies on their feet.
Indian economy will probably slow down to a more sustainable rate of around 6-6.5%, which still remains attractive number, vis-a-vis the developed economies. There will be years where the rate will be lower or higher than the trend rate. The slowdown is already reflected in the IIP numbers, decline in exports, and dip in commercial vehicle sales or even the shipping index. Earnings in tandem might be lower too, which is more or less reflected in the stock market, which was lower by 50% in 2008.
The Positive Side
The silver lining has come in form of the “Global Demand Destruction”. And the result? Inflation has dipped to 6%, and will continue to be lower, commodity prices are lower by 30-50%, and crude oil is lower by almost 70% from its peak. Interest rates (yields on 10 year GOI bonds) have fallen by 400 bps. These aspects combined with the fiscal and monetary package put forth, will have a positive lagged impact of 9-12 months on the real economy, subject to any financial blow ups.
What’s in India’s favour
It’s a higher savings rate country. The demographic profile is in its favour. And 65 per cent of India's GDP is driven by domestic demand and a reasonable growth rate over the next decade, these factors will help belief in India's growth story.
I don't see the elections as the big risk. Over the last 38 years, India has seen it all – be it natural calamities or political turmoil. In spite of all these upheavals, the growth rate has been stable at 6-6.5 per cent since then. So politics may matter in the short run, but not in the longer term. The reforms agenda is given, irrespective of which coalition is in power. The bigger risk is wrong policy making like the of P-Notes route for FII and allowing hot global flows into India which are disruptive and don’t contribute to the long term economic growth in India.
New age concepts like risk, innovation, leverage, laissez faire, capitalism, return ‘on’ capital
Old age concepts like safety, simplicity, government intervention, nationalization, return ‘of’ capital
Patience and discipline remains the virtues of investments in 2009. Invest regularly in markets for longer term and it will bear fruits.