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Economy & Finance
Boom is on
The world economies are
probably passing through one of the rare times in the economic history. Not only
most of the economies across the globe are booming but even most of the sectors
of economies are booming. Historically it was found that when some sectors boom,
other may slow down. However, the current boom seems to be all encompassing. The
stocks are doing well, real estate is going through roof, many a commodities
have hit their historic highs, precious metals and diamonds are in boom
conditions and even abstracts such as art has become popular and valuable as
never before. Slowly but steadily the interest rates are hardening and giving
higher returns on the fixed income earning deposits and securities. Still the
rise in the inflation rate is not alarming. There is enough liquidity across the
globe and the world is passing through one of the best phase of prosperity.
The recent slowdown in housing
sector in the U.S. economy was one of the factors bothering the world. However,
in the month of December the housing sector has started performing better. The
December figures of industrial production in US are encouraging. As of today the
possibility of slump in U.S. economy is remote. Consumer demand has not picked
up adequately in Japan but that concern is offset by heavy demand in economies
like India and China, which have a large consumer population and higher
disposable income than ever before.
While the globe is in a bull
cycle; India is growing faster than expected. The growth of Indian economy is
now projected to be around 9% for the current fiscal year and I will not be
surprised if in the final analysis it is touches 10%. Such a strong economic
growth indicates all round economic improvement in a country. It becomes visible
in the form of growth of infrastructure, high developmental activities and heavy
consumer spending. Growth generates more growth and vice-versa. The upswing in
the world economies is likely to last longer than originally expected. For
India, it may last still longer. With the petroleum prices stabilizing a bit on
a lower side, a major risk factor is reduced.
Sustained economic growth can
bring lot of good to the investors. These are the opportune times for the
investors to make money, as the chances of going wrong are less. Do take
advantage of this all-encompassing boom and make your money.
Stock market
But for minor corrections, the
stock market in India is continuously on upswing. The market has crossed the
Sensex level of 14,000 and the mood is still upbeat. Over the last few years the
game of valuation of stocks has changed. In fifties and sixties of the last
century, book value of stock was to dominate the stock prices. In the last few
decades the earning per share became the deciding factor. Now, the stock markets
have become futuristic. The expectation of growth is driving the stock prices
now. For common investor, it is difficult to spot and estimate growth. Day by
day the stock investment is becoming the game of knowledgeable professionals.
As of now the stock market
clearly seems to be on the upswing. Here onwards the mad-cap and small-cap
segments may have more opportunities for appreciation and the investors can
concentrate more on such stock ideas. Large-cap stocks will grow but most of
them are not cheap any more. I am inclined to be more aggressive in the equity
investment for the months of January and February. I advice booking partial
profit just before the budget as the budget may have some unpleasant surprises
affecting the stock prices. If the budget is reasonably investor friendly then
the investors should re-enter the stock market with the full-disinvested amount.
Today, it is essential that the investor chooses his stock well. Do study the
portfolio constitutions of equity oriented mutual funds schemes. They are the
indicators of what stocks are hot, though the choice of actual portfolio may
differ from the fund manager to fund manager. Investors can be moderately
aggressive on the stock markets. They may concentrate mainly on growth sectors
like infrastructure, power, housing, retail, tourism and technology. Sectors
like commodities, metals and petroleum may be avoidable for the time being.
Investors should stick on to industry leaders and indulge in only specific stock
ideas. Leader may give lesser returns than some shooting stars in the same
industry; but in the time of crisis they are the safe bet.
Properties
Contrary to my expectations,
the property markets are not showing any sign of slowdown specially in tier I
and tier II cities. The price appreciation has slowed down in tier III cities
and in some cases it has fallen from its peak. High liquidity has pushed up the
reality prices. In metros like Mumbai, the property prices are going through the
roof and they are not indicating slowdown. Recently, the tangle of TDR in the
city is resolved. The mill land is available for development. There is a chance
of substantial construction in Central Mumbai, which can release the pressure on
prices. Still, the prices may not decline sharply unless the economy slows down.
Pricing of prime properties is not so much governed by their intrinsic value but
it is more affected by the demand and supply equation which is partly a function
of liquidity in the market. As the stock market will remain strong for the time
being, investors may stay put with their property investments. Investing in land
in tier II cities can be beneficial in the short as well as medium term.
Deposits
Interest rates are hardening.
They may continue to harden. The banks are offering good interest rates on
deposits. Some fixed deposits up to tenure of one year can balance the portfolio
of the investor well. Bonds and company fixed deposit will give reasonable
returns though such opportunities are not available to small investors in
adequate numbers. In the recent days, the call rates had crossed double-digit
mark, though for a short period. There is liquidity in the markets, but the
money will not come cheap.
Precious metals and stones
These are basically defensive
investments and they appreciate with only demand supply equation, which is
partially governed by global liquidity as well as currency parities. Though the
precious metals have upward pressure and the prices may harden to give good
returns in the short run, I personally do not favour such investment over a long
period. As far as diamonds are concerned, it is well said “Diamonds are few
ever”. They will appreciate in steady manner and can provide good hedge against
inflation.
Art
Art is emerging as a huge
opportunity for investment in the last few years. In fact in many a cases the
prime art possessions have appreciated more than any other investment in the
recent years. Evaluating art is a complicated subject. The entry price of prime
art being very high, it has become a domain of high net worth individual and
corporates with high liquidity. A common investor does not indulge in art.
Still, for investors it is worth studying and taking interest in art as an
investment opportunity. They may invest in arts of upcoming artists costing less
than Rs. 1,00,000/- a piece. You never know when an artist gets in vogue and
they may hit a jackpot.
Conclusion
Times are golden. The going is
good. Do not lose opportunities. You may consume more; but save enough for
investments. The savings will support your future consumption needs.
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