The financial pundits' assurances of an insulated India lie in tatters and now even the Finance Minister cannot deny the impact of the global slowdown on India. A Ficci survey, which was conducted in November and December 2008, reveals that India Inc's business confidence has sunk to a seven-year low. According to the survey, 52% of the Indian companies feel that the economic conditions will weaken further in the next six months. Here's how you can position yourself so that you can ride out the storm successfully, at least till July 2009:
Stay defensive: The stock market indices have been erratic, weighed down by both global and domestic factors. Even the positive IIP numbers have failed to cheer the markets. "The markets are likely to be driven by technical factors in the next few months and corporate earnings will continue to disappoint, with the outlook on segments like oil and gas, infrastructure and IT expected to worsen," says Nandan Chakraborty, head (research), Enam Securities. Public sector banks shall be the main allocation attractor, he adds. According to experts, factors like insurance inflows, politics (general elections are coming up in May 2009), falling interest rates and GDP growth shall play a key role in determining the direction that the market will take.
Cautious optimism: Never mind the many forecasts that paint the bleakest of scenarios despite predictions of dipping interest rates, inflation and recovering corporate earnings. The second half of 2009-10 will see a potent combination come into play that is likely to catalyse the market and the economy. "For one, as the cost of funds for companies dips, we will see a revival of capital expenditure. Also, the government-led infrastructure and consumption push, combined with the fiscal stimuli, will act as positive triggers for the market," says Chakraborty. Meanwhile, the banks' current unwillingness to lend is also expected to change as RBI becomes even more aggressive and the demand for funds slackens over the next one or two quarters. While the global demand destruction is likely to continue for some time, the liquidity glut caused by the massive stimulus packages announced by several countries and the fiscal pump priming could start washing away the recessionary expectations across the world. India is poised to benefit as the risk appetite improves.
Watch out for false starts: While there is cause for hope, experts warn that the market may see some false starts in the short term - enough liquidity on the sidelines could lead to sharp, short rallies — and investors should not be taken in by them. It would be a good idea to use the consumer demand as a barometer. As things get bleak and valuations dip, you know it's time to jump in if the consumer demand remains intact. As the market recovers, sector-specific activity will be triggered. The time for prudent portfolio building and patching-up might be at hand.
- Rakesh Rai
|"The current (realty) dynamics will prevail in varying degrees for 14-18 months… The slowdown is definite, but it's a temporary phase."|
Anuj Puri, Chairman, Jones Lang LaSalle Meghraj
|"This could be another year of major volatility in global currencies markets. The rupee will be volatile."|
Indranil Pan, Chief Economist, Kotak Mahindra Bank
|"We won't change our view of India unless we find more evidence that there is a systemic problem, and that's not our view."|
George Dallas, Director, Corporate Governance, F&C Investments
|"There is some degree of nervousness in the market, especially after Satyam... We're maintaining a bearish outlook for 3-4 weeks."|
Waqar Naqvi, CEO, Taurus Mutual Fund
|Source: The Indian Express, The Financial Express and The Economic Times|
What the Indians watch
|Media choices in streaming/downloading|
|Music or other audio tracks/files||66%|
|Short video clips||57%|
|TV shows or clips||46%|
What's your MQ?
For the uninitiated, MQ stands for multimedia quotient, a term that is fast catching on in India. In fact, according to the Nielsen Global Online Consumer survey conducted in October 2008, the so-called digital divide between India and the West is not that wide after all. For instance, 94% of the 500 Indians surveyed said that they own a TV set, 82% own a computer, 70% own a CD player, 65% boast a DVD player and 37% own a portable music device. However, India lags behind in gaming: in the age of mobile gaming and Net surfing on mobile phones, 67% respondents own a non-video or Webenabled mobile phone. Also, 63% claimed to have bought a DVD in the past six months compared with 37% who bought computer games. "The games market has been growing, but is yet to catch on with the masses," says Vatsala Pant, an associate director at the firm.
- Rakesh Rai