Happy New Investment Decade
f you are a rational investor, you should be very scared of 2010. Very, very scared.
Almost everything has a good chance of going wrong. Food prices have gone through the roof, officially rising nearly 20 percent. As grains, pulses and simple vegetables like tomato increasingly go out of reach, millions of Indians will be forced to cut back their other items of expenditure to be able to feed themselves. The fear of shrinking demand has already led to a fall of nearly 50 percent in new borrowings by producers of goods and services. The government is spending much more than it is earning, leading to a record fiscal deficit in recent times. Interest rates are set to rise.
Shares and other assets like gold are already trading at levels much higher than their historical means and could go down. The capital that has fuelled their rally is likely to dry up. First, the extra money that came from the stimulus packages of various governments will cease. Next will come the unwinding of dollar carry trade, in which investors had borrowed cheap in abundant dollars and invested in currencies like rupees that have higher interest rates. Thus the twin Santas of liquidity and leverage will roll up their bags and ride their elves back to the Pole. A very reasonable conjecture: The year could see one or two sharp sell-offs. Take a snapshot of your portfolio today.
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Image: Dipali Banka for Forbes India
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WE WANT IN: New consumers from lower income groups will drive India's growth | |
But the biggest worry is about the global recession. History has shown that economic disasters are often followed by a quick recovery, and then, a slower, less dramatic but more devastating crisis. It happened after 1929 and after 1987. We have seen the quick recovery in the form of asset price rallies since March 2009 and increasing industrial production in emerging economies. What next?
Face it, friend. If you are the type that believes in moderate blood pressure and homo sapiens’ ability to buy low and sell high, you should liquidate your investments and wait for serendipitous upturns in the markets. 2010 will be volatile, unpredictable, moody and potentially hurtful.
But we are telling you to invest.
Just like the turbulence on the surface of the ocean hides the calm potency of the advancing currents beneath, the vicissitudes on the surface of the economy mask the deeper, more profound shifts that are powering India’s march towards becoming a middle-income nation, and hopefully even a rich one. Playing out over several years, these mega trends are easily lost in the mayhem of day-to-day markets. The serious wealth builder peels away the layers to discern and profit from them.
Thus, a slight change of perspective reveals a completely different 2010. A set of rare and benign circumstances is coming together to create just the right conditions for the nation to take off on a higher growth trajectory, bring economic opportunity to a wider swathe of its population, encash its so-called demographic dividend and end inequity. This is happening right in front of us; the situation was not ripe earlier and may be too obvious later. So, this year may just be the time when the smart, patient investor looks beyond the next settlement and bets on India’s future.
The country’s tipping point has arrived and it is 2010.
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Kudos to you and your team.
