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Hope still on hold

Rakesh Rai     January 21, 2009

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%
Music videos 59%
Movie trailers/ads 57%
Short video clips 57%
TV shows or clips 46%
Full-length movies 42%
Video games 32%

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

The Top 10 IPOs of 2008
Name of company Issue amount * Issue price (Rs) Price on Dec 29 Loss (%)
RELIANCE POWER 10,123 281 113 60
IRB INFRA. DEVELOPERS 945 185 127 31
KSK ENERGY VENTURES 831 240 163 32
ONMOBILE GLOBAL 480 440 215 51
SHRIRAM EPC. 150 300 148 51
AUSTRAL COKE & PROJECTS 142 196 103 47
* Figures are in rupees crore

No takers for IPOs

The year 2008 has undoubtedly been the worst for the Indian equity markets. A large number of IPOs that hit the market in 2008 lost as much as 30-70%. In fact, if we take a look at the amount collected by the IPOs this year, the mobilisation has been the lowest in the past five years. While the collection in 2008 was Rs 17,000 crore, it represented a fall of 63% from the Rs 45,137 crore raised in 2007, reveals a study by Prime Database.

A meagre 16% of the IPOs were oversubscribed by more than 10 times compared with 50% in 2007, and as many as 14 issues barely managed to get a one-time subscription. Even the Reliance Power issue, India's largest IPO, accounting for 60% of the year's total mobilisation, was battered at its opening trade and hasn't surfaced beyond its issue price ever since. Though the promoters declared a bonus to restore the investor confidence, the stock is still down by 60%. Worse, three IPOs had to be cancelled because of lack of response, including the Rs 5,436-crore issue of Emaar MGF and the Rs 564-crore issue of Wockhardt Hospitals.

"The IPOs are a subset of the secondary market, which, in turn, is a subset of the economy," says Prithvi Haldea, managing director, Prime Database. As the market remains volatile and the economy shows no sign of picking up pace, the IPOs too will remain depressed in 2009.

- Tanvi Varma

Right to pension

Along with equality, freedom of speech and justice, your inalienable rights now include receiving pension. "Deprive a pensioner of the payment and you deprive him or her of the right to life. Delayed payments place a pensioner in the position of uncertainty and dependence, which impinges on the quality of life under Article 21, and the right to dignified existence of the aged," said the Bombay High Court recently, while directing the transport undertaking of Solapur Municipal Corporation to deposit the pensions of the retired staff on the first day of the succeeding month, or latest by the seventh day. So if you do not receive your pension regularly and on time, you now have the law on your side.

- Rakesh Rai

Policy Snapshot
Fund options Five, across risk levels + a lifestyle fund that automatically adjusts debt-equity ratio as per age
Premium (annual) Rs 12,000
Entry age Minimum: 20 years
Maximum: 60 years
Policy tenure 10 to 50 years
Riders Two: a term rider offering life cover and a waiver of premium rider that protects future premiums

Safer retirement

Look at any advertisement for retirement planning. All have one thing in common—they ram home the point that expenses are going to rise in the future, making your current standard of living unsustainable without proper planning. Yet, Indians are not big on postretirement financial plans. According to a study by Aegon Religare Life Insurance, about 87% of the Indian workforce is not covered by any pension scheme, leaving them dependent on their often inadequate savings or on their children.

On the back of this study, the company has launched a unique, feature-packed pension plan. Says Rajiv Jamkhedkar, CEO, Aegon Religare: "This plan allows one to make gradually higher contributions year on year, making a significant impact on the corpus that is being built. It also has a lifestyle fund option that automatically balances one's investment with age." So one will have a higher equity allocation in the younger years, which will reduce as one reaches the vesting age (50-70 years). The increasing contribution option allows one to increase the premium by 5% or 8% annually.

The Aegon Religare Pension Plan comes with two riders - one offers life cover through a term rider and the other protects future premiums. If the customer suffers any permanent physical disability due to an accident, all future premiums are taken care of. The concept behind this plan is not unique; similar products exist in India. Its the powerful features that make this plan stand out.

-  Narayan Krishnamurthy

The movers and shakers

Five of the world's top 10 exchanges, in terms of the companies listed, are Asian. The Bombay Stock Exchange tops the world charts in terms of the number of companies listed.

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