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Where to Invest Now

Here's a lowdown on three investment scenarios prevailing in the current markets, go ahead pick yours

A brief excerpt of the cover story of the April-May 2008 issue of Mutual Fund Insight. The suggested method of investing and the recommended portfolio are not reproduced here. To subscribe for this magazine, please click here.

The views in the market are terribly varied. Everyone has their own take on where it is headed. We present you with three broad scenarios. Then we leave it up to you to decide which view you personally tilt towards.

The mind of the Pessimist
The slowdown of GDP growth gives the impression of a fatigue swimmer flailing for shore. Inflation keeps raising its ugly head. Elections are looming, bringing with it uncertainty which the market hates. And, globally, the threat of a U.S. recession has turned into a reality. If India can benefit from an increasingly globalised environment, can it possibly be immune to global weakness? And, to add fuel to the fire, the price of oil remains alarmingly high. From now on, the market has only one way to go - downhill. 2008 is the year of the Great Indian Meltdown.

The mind of the Realist
No one knows where the market is headed: Up, down or range bound. On the one hand, we do have the India growth story firmly rooted in domestic consumption. But on the other, the U.S. recession is a reality and it is foolish to presume that India will be insulated from it.

GDP growth has slowed down from 9% rates, but will continue to clock around 8% per annum. Not bad at all. But the battle with inflation continues and political uncertainty, thanks to the nuclear deal and elections, is here to stay.

Stocks are available at great bargains. And there will be more market slumps throwing up some good buys. But then who knows if the market will ever rally substantially to give a good return on investment? That's reality. No one knows what to expect anymore.

The mind of the Optimist
Living in an era of globalization, we are bound to get hit. But there is ample activity within the country to soften the blow. Domestic demand, increasing employment numbers, rising incomes, a growing middle class coupled with mounting customer credit and increased infrastructure spending will keep the economy on a roll. The demographics, in terms of a young population, are strong enough to ensure that consumption growth will be a key driver of the economy over the long run.

The capital market is sensitive to global dips and short term volatility is something we must get accustomed to. The factors driving the market are long-term and structural in nature. Within this structural run, there will always be shorter-term cycles (over the long term). And within different cycles, the sector leadership may differ. But the fundamentals of the economy remain strong and the prospects upbeat.