The year 2007 was remarkable for virtually every asset class. The equity, real estate and gold markets boomed spectacularly. New and useful products and services from asset managers, insurers and banks rolled out regularly. However, this year the situation has been just the reverse for most asset classes. While the commodity markets boomed, the equity markets crashed and real estate markets witnessed a correction. So as we wrap up our Second Anniversary issue, we are once again confronted with the essential investment question: What lies ahead?
Money Today reached out to experts on stocks, real estate, mutual funds and commodities for their views on the way the markets will pan out in the coming year. We also talked to bankers, taxation and HR professionals to get a sense of the trends and changes they expect.
The picture they painted is a mixed bag, ranging from encouraging to cautious and gloomy. Clearly, it would be unrealistic to expect the gains we saw in 2007 for some time to come. In the following pages, experts ranging from our model portfolio fund manager Dipen Sheth to global market guru Dr Marc Faber tell you what they expect in the coming year and which avenues can offer the best returns.
Keep expectations realistic and look out for opportunities that come your way. The Money Today team wishes you luck.
“Bottom could be about 9,000-10,000 on the Sensex”
— Amitabh Chakraborty, President, Equity, Religare Securities
We will remain in a protracted bear phase for the next 18 months or so. It is difficult to predict when stability will return to the markets. The sub-prime problems in the US and the UK are very acute. If they become worse, we could see some more selling by FIIs, especially because the hedge funds focusing on Asia (ex Japan) are facing redemption. Hence, we believe that for the next few months volatility will continue and there may be 10-15% downside from current levels. The bottom could be about 9-10 times forward earnings—that is about 9,000 or 10,000 on the Sensex.
The upside triggers could be inflation and interest rates coming down. Also, there is a general election next year. If a new government comes with a clearer majority, it would be positive for the markets. We expect a bounce rally between now and January, followed by a dull range-bound market at 10,000-12,000 level for the whole of 2009.
As far as corporate profits are concerned, top line growth would be good to the tune of 20-25%, but the bottom line would be around 10-12%. This is a fall from the earlier high growth rate and is largely due to higher costs. On an aggregate level there may not be a decline, but at this point, our estimates (920 earnings for the Sensex vs 970) are much lower than the consensus estimates.
For the next year we would recommend investing in defensive sectors like FMCG, auto (2-wheelers), pharma and PSU banks and avoiding sectors like metals, construction and real estate. Sun Pharma, ITC, SBI, Infosys and Hero Honda are our top picks. Valuation is cheap today. It would be cheaper tomorrow. But if the market remains range-bound, stocks might not move and investors’ patience might get tested.
One can get higher returns in India than in global markets, but global markets diversify a portfolio, which is healthy.
“Emerging markets hold the key”
The investing world has just been flattened! It’s not just stock markets, commodities or real estate. Everything looks connected, and the painful process of leverage unwinding is pulling down the global economy.
It’s a “black swan” event for sure, which makes it impossible to predict the future. But some pointers are beginning to emerge. More will appear as the pain plays out, but for now, these are the things that investors must consider:
End of US hegemony
The US might remain the world’s largest economy for several more years, but it has lost its position as the driver of economic growth. It’s not bankrupt, but the US economy is seriously impaired. Consumption will shrink and might take years to revive. What happens to the Chinese export-oriented factories and the Indian IT stories? Worrisome questions for all of us...
Emergence of alternative drivers
In spite of their dubious sociopolitical infrastructure, the sheer economic weight (and accumulated wealth) that the Middle East and China now carry will ensure that the world finds a substitute quicker than you think. The dark horses: Japan and the Eurozone.
Likewise, the investing behaviour of the sovereign wealth funds of many countries in the Middle East, the development plans of their governments and the global business ambitions of their sheikhs and emirs will decide where the global economy will go. It simply does not matter what the US president (or public) desires!
Flight of easy money
Money is becoming increasingly scarce as leveraged positions unwind across the globe. A lot of selling could be less due to dwindling faith in the invested assets and more due to the “unwinding” of money. Just as euphoric buying doesn’t worry about the price (and drives up prices beyond rational value), fire sales push it down to irrational levels. Result: even good stocks crash to inexplicably low levels.
Amidst the gloom, a few things give me hope for the future:
Emerging economies: Round 2
China, Russia, Brazil, the Asian tigers and India have led the surge in investment over the last 10-20 years. Surely, these large investments will trigger consumption booms. In fact, India is seen as a somewhat more stable economy because we have a robust domestic consumption. With three times our per capita income and 20% more people, isn’t China an even more attractive proposition?
Resurrection of America?
Don’t rule out that the US can re-emerge as a leading economic power. Why? I have great faith in the founding values of American institutions. In the values that are enshrined in their judicial system and Constitution. And in the fundamental solidity of the great American dream—to prosper, reinvest wealth and consume. By fair means. A remarkable catharsis has been set into motion by the recent crisis. Americans are prepared to take tough decisions and rebuild their nation. Maybe it’ll take them half-a-decade, but you only need to read up on the American political and economic history to figure out that if there is a nation that can claw back from the worst of crises, it is America.
“No upside triggers for the markets”
— Amar Ambani, Vice-President, Equities, India Infoline
History suggests that an average recession in the US lasts about 12-14 months. However, this time it might last longer considering the magnitude of the problem. The bailout effect will not be felt overnight. In fact, problems in Europe have just begun to unfold. We could see another 8-10% downside before the end of this year, and the Nifty could touch 3,200-3,300 by November. Even when stability returns, we will not see a V-shaped recovery. The markets will remain subdued for most of 2009.
Currently, there are no upside triggers for the market. The first quarter of 2008-9 recorded a 12% growth in net profits, but the next quarters will witness a slower rise. High interest rates will affect corporate profits in 2009. Telecom and FMCG could be the promising sectors in the coming months.
“Corporate earnings may fall to 14-16% this year”
— Phani Shekhar, Equity Analyst, Angel Broking
Most equities are nearing distress valuations. But markets have a way of finding order in chaos. We are looking out of relative clarity on the damage to the real economy in the West. This clarity might emerge in the next 3-6 months.
Thankfully, over a one-year time frame, the downside is relatively capped. However, one has to keep an eye on the deleveraging going on in the West. Also, corporate earnings may slow down to 14-16% in 2008-9 on the back of higher interest rates.
A key upside trigger may be a synchronised monetary loosening across the world. The banking sector may surprise on the upside because of monetary loosening. Over the next year, the Sensex should trade above 13,500 with an EPS target of Rs 910.
If you keep a two-year horizon, then the top five stock picks would be as follows:
Infosys and TCS: Large software companies are best placed to reap the rich rewards from the shaping of landscape of the financial sector in the West over the next couple of years.
ICICI Bank and HDFC Bank: As interest rates seem to have peaked and may come down in the next 6-9 months, these frontline banks may give handsome returns.
Rural Electrification Corporation: The company enjoys a dominant position in powersector lending. Serious players with committed targets for powersector projects means immense profit visibility. The stock is available at very attractive valuations.
“Small realtors may be eased out”
— Sanjay Verma, Executive MD (South Asia & Australia), Cushman & Wakefield
The economic slowdown, high interest rates and the US crisis have had a cascading effect on the Indian realty market. The demand for property has tapered off in the past 6-7 months. The sector may witness consolidation due to the inability of small developers to complete the projects on hand. This has already begun in the retail and hospitality segments. Small- and medium-sized firms are also placing their land banks on the block to counter the downside.
“No more super-profits for the industry”
— Niranjan Hiranandani, Managing Director, Hiranandani Constructions
In the short term, the property market will do fairly well with the onset of the festive season. But there won’t be a significant change. Overall though, there will be softening of prices till April 2009, and things will look up from May onwards. This is a temporary slowdown and the market will pick up.
In the long term, however, the real estate sector is set to grow manifold in the next 10 years as compared with the past 10 years, though the profit margin for developers would be lower. The age of super-profits is over for the real estate sector and developers will have to remain content with low profit margins. If a real estate developer does not believe in this and keeps on waiting, somebody else will take business away from him.
“Prices will be more rational in 2009”
— Anshuman Magazine, CMD (South Asia), CB Richard Ellis
Though it is almost certain that 2009 is going to be a tough year for real estate, it is difficult to point precisely towards the trend. We have never seen this kind of a situation in the past—a meteoric rise in prices and then a sudden slowdown. On the positive side, however, though the real estate business has slowed down, it has not vanished altogether, unlike in the past recessions. We are still seeing some activity in the major markets across the country. The best part is that there is still enough demand for property if the price is right. However, this also means that investors in real estate should forget the spectacular returns of the past and tone down their expectations to reasonable levels.
If the Indian economy continues to grow even at 7%, we will see the real estate market rebounding in some time, though the rate of price appreciation will be more rational compared with the “irrational exuberance” witnessed in the past few years.
“Slowdown in overheated markets”
— Anuj Puri, Country head, Jones Lang Lasalle Meghraj
We are indeed witnessing a correction in the real estate market, but this is predominantly brought on by the sharp 200-300% rise in property rates over the past two years. It is perfectly natural and reasonable to expect such an adjustment of irrational growth. Having said that, we must note that the slowdown is specific only to overheated markets in the north and the recent stock market fluctuations. Some domestic investors have sought to sell their holdings and withdraw from the property market. However, this is not bad news in the sense that real estate values are correcting, leading to a brake on illogical land valuations. The major players are still making serious inquiries.
“Returns from real estate will outshine others”
— Rohtas Goel, Chairman & Managing Director, Omaxe
The housing sector is a cyclical industry, but it usually does not go backward for very long, if at all. As an investment, real estate has been a terrific long-term wealth creator and will continue to be so, especially in neighbourhoods with a consistent, proven rental clientele—like a college or a university town. The additional money you save now will not offset the potential appreciation or the fatter monthly payment that could result if home loan interest rates rise further.
“Correction not Just desirable, but necessary”
— Ashish Raheja, Managing Director, K Raheja Universal
Prices of land as an asset class have increased disproportionately compared with the appreciation in prices of built-up property. So, a correction in land prices is not only desirable, but also necessary. In a large metro like Mumbai, land is already scarce and demand is user-driven. Here buyers have a high purchasing power and there is very limited supply of new real estate. Hence, real estate prices in Mumbai are likely to stabilise with a moderate appreciation.
The difference between the slowdown in 1996 and 2008 is that though there is a genuine demand this time around, high interest rates coupled with ridiculously high prices are squeezing out buyers. It is also not possible for a developer to lower his rates as he is shelling out high construction costs. Caught in a web with low volumes, the market is witnessing a much required downturn.
“Inflation will fall significantly”
With commodity prices coming off, demand slowing and expectations that inflation will fall, the case for raising rates has weakened… Inflation will fall significantly in early 2009.
“India and China will form the Ivy League”
— K.V. Kamath
A few years ago, at the World Economic Forum, there was a question on the type of banking system that will be in place 10 years later. Will it continue to be an Ivy League of banks or will it move to person-to-person banking at the other end of the spectrum? My view at that point of time was that it will be an Ivy League of banks, with technology becoming a very important part. But the question is, who forms this Ivy League? There is a clear shift being seen towards the two large emerging markets, China and India. So in the coming years, 24-48 months from now, we will clearly see the shift happening. There will be an even balance across banking power-houses.
“Interest rates have peaked”
— O.P. Bhatt, Chairman, State Bank of India
The liquidity situation is definitely tight at the moment. Inflation has come down and it is unlikely that it will go very high. So, in this scenario, it is difficult for me to imagine that the RBI will hike interest rates. For the moment, the rates seem to have peaked.
“Rupee is likely to stabilise”
Over the medium term the rupee is going to stabilise. The Reserve Bank of India will, for the time being, intervene. But over the next six months, inflation and growth will decline.
“Debit card fee might rise”
— Aspy Engineer, Vice-President, Alternate Channels, Axis Bank
With the central bank doing away with ATM transaction charges from March 2009, some people believe that the ATM spread will slow down because banks will no longer need to set up an ATM at every locality. But we will see a lot more ATMs coming up.
In fact, Axis Bank has been contacted by a few outsourcing agencies, both homegrown and subsidiaries of foreign companies. They are proposing to manage our ATMs along with those of other banks in lieu of a per-transaction fee that banks will pay. This is a variation of the White Label ATM business model.
There is no scope for banks to increase the existing service charges. However, debit card fees might spurt. The RBI wants banks to do away with ATM transaction fees on debit cards irrespective of which bank’s ATM is used. But why should banks have to bear the cost, particularly for nonprofitable customers?
“Consumer will be the focus”
— N Rajashekaran, Country Business Manager, Global Consumer Group, Citi India
The year 2009 will accelerate the focus on customer satisfaction. While innovation in product design and distribution will stay on the radar, customer delight will be won through exceptional service and experience. I expect to see a deeper understanding of the customers’ requirements, with a focus on product suitability and transparency. We will also see a greater emphasis on aligning products and solutions to meet the customers’ evolving financial planning needs in the context of a challenging economic environment.
“Accumulate gold, zinc and nickel for profits”
Commodities have proven their worth in the past year and have created wealth for investors. There has been a steady increase in investor participation as is evident from the consistent rise in volumes on the commodity exchanges in the past few months. The dull phase in the equity markets has also contributed to this growing interest in the commodity markets.
The appeal of commodities will continue in 2009 as well. In the mid and long term, investors can expect 15-25% annualised returns from commodities.
Higher inflation in global economies, combined with a credit crunch, is expected to keep up the pressure on the equity markets, which in turn is expected to boost commodities. So, this is perhaps the right time to invest in commodities.
Gold, which is traditionally considered a safe investment haven, will retain its status because of geo-political tensions and high inflation across the globe. Since the economic outlook seems to be bleak, the dollar could still underperform, which would be positive for gold.
Invest in gold when it is below Rs 11,500-12,000 per 10 gram for a target of Rs 13,500-14,000. One can also start buying metals such as zinc and nickel as long-term investments. Zinc could be accumulated around Rs 70 per kg for a target of Rs 95 while nickel can be bought around Rs 700 a kg for a target of Rs 1,000.
“Losses possible this year”
— Kuljeet Kataria, V-P, Commodities, Motilal Oswal Financial Services
For investors with low risk appetites, a small holding in commodities can help reduce risk. For more adventurous investors, commodities can give long-term returns similar to those from equities without the risk of pronounced declines in the equity markets. So the risk is lower in commodities compared with equities.
Since July this year, the commodity bulls have been mauled by a bearish sell-off. Commodities can suffer a major reversal and this can make new investors nervous. It wouldn’t be surprising if commodities posted losses in 2008 after seven consecutive years of spectacular profits. It is actually a positive development to see speculative money exiting the asset class because it takes policy-makers’ attention away from high prices.
“Expect gold to cross $1,000 an ounce”
— Pritam Patnaik, Associate Vice-President, Kotak Commodity Services
Everyone is looking for an avenue that has the potential to generate attractive returns while operating in a well-regulated environment. The commodity market fits the bill. With more and more brokers entering the commodity segment, broking services have been structured to cater to retail investors’ needs. Further, there is a lot more information being broadcast via print, electronic and Web media, keeping the investors updated about the commodity markets.
Gold is a commodity which still seems to have a lot of shine left in it. During uncertain times, investors rush to transfer investment assets to gold. We expect gold to cross $1000 an ounce by early next year.
“New govt may introduce populist measures”
— Sonu Iyer, Partner, Tax and Regulatory Services, Ernst & Young
The present government has already rationalised the tax structure. The new government could introduce a couple of populist measures. One of these could be the reintroduction of the standard deduction, the demand for which has been persisting for long. There is a possibility of an increase in the investment limit of Rs 1 lakh under Section 80C. The interest rates on housing loans have almost doubled in the past few years. However, the tax exemption limit on its repayment is Rs 1.5 lakh a year. To provide some relief to borrowers, we could see this limit being increased to Rs 2 lakh.
However, not everything will be rosy. In my opinion, the commodities transaction tax will stay as it affects only speculators and not genuine investors. There could be an introduction of a cash flow statement in the tax return form if tax collections fail to meet the projections.
“FBT and tax on dividends could go”
The key issue that will drive the agenda would be tax reforms. There is little chance of changing the core tax rates, but there is a likelihood that the fringe benefit tax (FBT) and the tax on dividends will be removed. There is a possibility that more industries, especially in the services sector, will be brought into the tax net. There won’t be much tinkering with import and excise duties, but we could see the road map ready for the introduction of the goods and sales tax.
“Capital gains tax may not change”
With education seen as a thrust area, the education cess may continue. Any change on the capital gains tax front would dent the sentiments. The commodities transaction tax would need to be monitored, and in case the collections do not justify its levy, there could be an argument to do away with it.
“New income-tax law likely”
— Vikas Vasal, Executive Director, KPMG (India)
The proposed income-tax legislation, which is being reviewed by the government, may be introduced. The government may tinker with the slabs, but linking them to the inflation index seems difficult. Some cesses might go.
“Cut FBT rate for Esops”
— Kapil Krishan, Chief Financial Officer, India Infoline
The fringe benefit tax on Esops is quite harsh. It should be the same as on other capital gains rather than being in the highest tax slab. There could be an exemption for the commodities transaction tax if the buyer opts to take delivery.
“Bond funds can give over 10%”
— Sandesh Kirkire, CEO, Kotak Mutual Fund
Debt funds inevitably gain prominence in times of market uncertainty. But frankly, debt funds have never been out of focus for the mutual fund industry. It is just that the low-risk, low-return expectation of debt funds makes them a little less exciting than equity funds. Right now, liquid and liquid-plus schemes are offering reasonable returns. A good return potential is also visible in long-term bond and gilt funds, provided the investment horizon is over a year.
The inflation rate might come down to about 6-7% by April next year. Under stable conditions, it may even slide further. In this backdrop, a rate cut after July-August 2009 seems possible. With this outlook, you can expect double-digit annualised returns from fixed-income funds with longer-term maturities.
Though the spectre of a crash has created uncertainty in the equity markets, dedicated and established diversified funds can provide value in the long run. Also, the bundling of insurance with SIPs is an ideal product for investors seeking growth and insurance cover.
The telecom and pharma sectors will attract the bulk of investment next year. Other than these, the FMCG and capital goods segments, along with metal and commodities, may also attract investor attention.
Coming to global funds, under normal circumstances, investment in the global market is considered a sound geographical risk diversification strategy. I believe that emerging markets will continue to perform better than developed markets mainly because of their higher growth potential. Investments must fit into the risk-reward profile of the investor and must correspond to his investment objective and time horizon. If global assets fit the bill, then why not?
“Interest rates will come down by march”
— A. Balasubramanian, CIO, Birla Sun Life Mutual Fund
When investor sentiment is poor, there is a high demand for bonds, especially sovereign bonds, since these are safe havens.
Though there will be volatility in the interim and rates may go up, by March, the rates will come down. We could see the yield on a 10-year gilt down to 7.4% from the current 8.15%. The RBI has already cut the CRR twice, which is a sign of liquidity easing. But the repo rate may be cut only in January or April 2009.
If one’s asset allocation is taken care of, gilt and bond funds or certificates of deposit will provide good returns over the next year. A mix of a regular gilt fund and a short-term fund would be ideal. One can also look at FMPs if one is willing to lock in the money for some time.
“Contra funds will do well”
— Tridib Pathak, CIO, Lotus India Mutual Fund
We are positive about the contra theme in equity funds as a serious contrarian approach has the potential to generate superior returns over the next three years. We also think that a well-diversified equity fund should work in the investor’s favour. For pure retail investors, we think ELSS funds should be the best strategy. ELSS funds automatically bring the benefits of disciplined investing. We are overweight with the banking, telecom, FMCG, media, capital goods and oil marketing sectors.
Our biggest overweight position is in banks. We have one of the most secure and robust banking systems in the world. Banks will continue to see secular growth and consistent profits. The sector is also trading at a deep discount.
“FMCG and pharma are likely to do well”
It is difficult to predict the direction of the equity markets over the short term. The next one year is expected to be volatile on account of turmoil in the global financial markets. But consumer and healthcare-related sectors are expected to play out well in the current scenario. Sectors like FMCG are expected to do well on account of triggers like the Sixth Pay Commission and high agri-commodity prices, which will translate into high disposable incomes. Also, with high interest rates reducing the demand for real estate and other such investments, a realignment of expenses towards consumerrelated goods is expected.
One should invest in any asset class based on his investment objective, risk appetite and time horizon. Investors have been investing in debt funds based on the past year’s performance. For investors aiming for capital appreciation and with a longer investment horizon, investing in equity would help provide potentially high-risk-adjusted returns over the long term.
Global funds provide risk diversification and extended opportunities. Asia is an attractive investment story since it does not have the financial leverage that is the fundamental cause of crisis in the West.
Also, the domestic triggers in Asian economies, such as high savings rate and high consumption patterns, are expected to contribute towards maintaining the growth rate in this zone.
“Equity returns to be moderate in short term”
— R. Swaminathan, Head, Institutional Business Group, IDBI Capital
This is the time to pause as there is no clarity amid the global crisis. Over the next one year, inflation is expected to be tackled well and interest rates may soften. Hence, it is better to have short-term debt funds. The market turbulence cannot be judged by one or two positive developments. Apart from the global factors, the events over the next few months, starting from the elections to the sectoral growth, are more important. The appetite for equity is not yet visible. The market is attractive considering the high valuations of the past, but the bottom is yet to be reached.
The returns may be moderate in the short term. However, in the medium-to-long run, there may be positive outcomes. Large-cap stocks may play a leading role in the revival of the market. The infrastructure sector may be worth looking at for mediumto-long-term investment. The banking sector may also be promising, followed by the capital goods, engineering and FMCG sectors.
“Go global to diversify, not to enhance returns”
Debt funds should be part of every investor’s portfolio. As growth concerns come to the forefront, income funds should perform well. The current scenario is positive for debt funds due to the following reasons:
•Inflation is close to its peak.
•Growth could slow down to below 8% in the next few quarters due to the overall global slowdown.
•The RBI is likely to maintain a status quo in the next policy meet.
Investors should be extremely cautious about their asset allocations and not be swayed by market behaviour. Over the past 4-5 years, asset allocations have been skewed towards equities, with little or no exposure to bonds.
The companies that are less dependent on external capital (domestic as well as international) for business and expansion purposes could do well. At current market levels, there would be enough opportunities.
All classes of investors seem very averse to risk right now. The overall sentiment is probably at its lowest level. Investors should buy global funds to diversify their portfolios, rather than to enhance returns. It may be worth looking at some emerging markets, which could benefit whenever the upturn happens. It is better to buy early and cheap, ignoring the volatility, than wait until markets are in full recovery mode.
“Time to buy equities”
— Sandip Sabharwal, Executive Director & Chief Investment Officer, Equity, JM Financial Mutual Fund
Given that equity valuations are down and there is widespread panic in the markets, this could actually be a good time to allocate larger sums to equity rather than debt funds. When the markets recover, large-cap stocks will lead the rally. But mid-cap stocks have also been beaten down and it might make sense to have an exposure across themes. Over the next one year, sectors like capital goods and engineering and financial services look very good. In the present scenario, it is better to avoid global themes and focus on the domestic market.
“Outperformers will replace mediocres”
The effect of the US financial crisis will be felt across some sectors, including IT, banking financial services and insurance, over the next one year. Increments can come down by 5-10%. In general, recruiters will look at increments very closely. It will also become much tougher to earn variable pay in such circumstances. The businesses that are more focused on the domestic market would be best placed to hire and in a position to pay good increments. Outperformers (especially in sales) will be in high demand. In fact, companies may replace three mediocre staffers with one or two crack salespersons. The organisations that think ahead and have the cushion to absorb talent will use this as an opportunity to hire high-quality resources.
“Not hiring mid, senior levels”
— Sanjay Jog, Chief People Officer, Future Group
There are reports of a slowdown across sectors, but we have not seen any direct impact as yet. The retail story has a bright future and we have ambitious plans. We are hiring for stores in tier I, tier II and tier III cities. But we are looking carefully at our requirements in the mid and senior levels where we are not hiring at this point. Employees are being redeployed within the group. Our increments and variable pay are at the same levels as last year.
“Bonuses and hikes to shrink”
— Sampath Shetty, V-P, Permanent Staffing, TeamLease Services
Hiring across some sectors would fall over the next one year. In terms of sheer numbers, the biggest cut would be felt at the lower management level. The generosity of bonus dole-outs and liberal pay hikes will not be seen in the coming few years in this market. The most optimistic percentage hikes expected will be 15% across levels and industries. Variable pay will have a larger share in the entire costto-company component.
“Hiring plans on track”
— Priya Gopalakrishnan, Director, HR, ING Vysya Life Insurance
The insurance industry in India has been one of the fastest growing sectors over the past few years. The impact of a possible global slowdown on this industry does not seem significant right now. Our hiring plans continue to hold good in the coming months irrespective of the recent global financial turmoil. We are not considering a freeze on recruitment and have no plans to change the existing compensation structure.
“I Invest in assets that go down the most”
—James Beeland Rogers, Co-founder, Quantum Group of Funds
Jim Rogers is a renowned global investor who retired in 1980 to travel the world on a motorcycle. It resulted in Investment Biker, a book that combines Rogers’ travel adventures, economics and investing. Known to bet on countries, Rogers is very bullish on Asia and believes that the region is today what America and Europe used to be—motivated, driven and on a high-growth trajectory. When he was moving to Singapore from New York in 2007, he declared, “If you were smart in 1807 you moved to London, if you were smart in 1907 you moved to New York City, and if you are smart in 2007 you move to Asia.”
Given this outlook, the recent bail-outs by the US government do not go down well with him. He calls it “pure socialism”. “It is welfare or socialism for the rich. This recent largesse will result in over $10 trillion US federal debt, which I and my children will pay off,” he says. It is bad for the US economy, the dollar and the inflation rate because the government is bailing out Wall Street, that is, a few people at the troubled banks. “We have had banks going bankrupt for so many years. The world won’t come to an end because of this,” he says.
Rogers expects the financial disruptions to continue for a while before it all settles down, and he is quite certain that it will. But few countries will escape the repercussions of this turmoil. “Decoupling will work only if your business has nothing to do with the US. When the largest economy in the world is in trouble, it will affect everyone associated with it,” explains Rogers.
Commodities is his favourite investment category and Rogers sees great potential for it in India. “If Asia continues to grow and India continues to grow, the best way to invest will be to buy things. India will have to own and consume these things,” he says. Rogers claims that “commodities is the best”. But his eyes are set on other industries of the Indian economy too. “I am very bullish about tourism, agriculture and water treatment sectors. These are the spectacular parts of the Indian economy, which, despite the government, have a great future,” he says.
To the question on his ability to enter the markets when they are down, Rogers says, “I am the world’s worst market timer and a horrible short-term trader. I have no idea about these things.” Even then, we want to know where he would invest now? “I buy assets, be it equities or commodities, depending on what goes down the most. Today, I would probably buy stocks of airlines, water treatment and other recession-proof companies. The way to get rich in the side market is defined by the companies that come through hard times with good results,” Rogers says.
He ends the conversation with signature modesty, which hints at an important investing lesson: “A lot of people can tell you every day what and how much you should buy and when you should expect it to go up. I am not one of those people.”
“Trade in oil, energy & auto”
— Larry R. Williams, Renowned commodities trader
Most investors would remember 1987 for the big crash in the US markets. It was also the year in which Larry Williams won the World Cup Championship of Futures Trading. He traded $10,000 in real money to $1,147,000 in 12 months—a feat that no one has matched so far. “I switched to commodities because of the big difference in margins; you can get more bang for your buck here,” he says.
For buying stocks, Williams refers to his quirky strategy of analysing expert recommendations. “When over 80% newsletters are bullish on a stock, it goes down. When only 20% say buy, the stock moves up.” It is easy to say buy when the market is going up. But to make money, you should be rational and look for market signals to get in, get out and make a profit,” he explains.
Williams sees a pattern in the stock prices in India. “It is not so apparent, but it is there. It should be clearer by early next year,” he says. What is a good investing strategy now? “Trade in oil, energy, auto or other sectors with strong seasonal tendencies. It should yield results,” he says.
“Buy physical gold, not as derivatives”
— Dr. Marc Faber, American commentator, author of The Gloom Boom & Doom Report
He is better known as Dr Doom after his famous newsletter called The Gloom Boom & Doom Report. Known to get the trend right, but the timing of investment cycles wrong, Marc Faber is bearish about investing across asset classes. He says, “A bull market leads to a new all-time high. I think that is unlikely to happen anytime soon. So I am not interested in playing the stock market at present.”
Faber thinks that stock markets around the world aren’t going to see another “all-time high” in real terms for the next 20 years. That’s not to say the markets won’t rebound in the short term, but the indices will largely be range-bound.
So what is the way to intelligent investing? “Stock selection will be the key,” says Faber, as he dismisses indexing altogether. Currently, he is betting on commodities, particularly gold. His tip for investors: everyone should own gold in the physical form but not as derivatives with banks, because banks may fold up and vanish tomorrow. For Indian equities, Faber predicts: “I think the market will eventually drift below 10,000 and then become attractive for entry again.”
— Contributed by Sushmita Choudhury, Priya Kapoor, Shruti Kohli, Rakesh Rai, R. Sree Ram and Tanvi Varma
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