|»5 Minute Wrap Up by Equitymaster|
On This Day - 5 JANUARY 2009
Some predictions for 2009
In this issue:
For instance, Mr. Ajit Dayal, Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. titles his outlook for 2009 as "Fog on a rainy day". Herein, he writes and we quote - "Forecasting what is likely to happen in calendar year 2009 is a tough proposition. We are driving in heavy rain - and there is a dense fog all around us."
On his broad investment outlook for this year, he writes - "The speed with which the Indian stock markets recover - and decouple from the global markets - will be a function of how quickly we sort out our own "Made-in-India" problems. Despite these uncertainties, we need to go through the exercise of "asset allocation" to understand how best to position our investment portfolios. And, if there are unexpected changes of significance as the year unfolds (as there were last year), then we need to factor those new unforeseen events and make the necessary changes in our investment portfolios."
"For the moment, keep your mind at ease by keeping aside enough cash - and split any balance you have in an 80:20 ratio for investments between equities (individual stocks, equity mutual funds, and tax-saving equity mutual funds) and gold," he says.
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In an interview with The Economic Times, Mr. Bhatt opines, "My own sense is that the worst is over. There may be lull for another month or so, but ultimately people will spend...people will start buying."
Well, the way the RBI has reacted to the financial and liquidity crisis and has brought down interest rates, Mr. Bhatt's words are not really without basis. With savings rate for Indian households remaining high thereby providing a cushion against adverse times, consumption spending is not likely to take a big knock going forward.
This can clearly be gauged from a visit to shopping areas. People are still buying clothes, electronics, luxury items and other consumption products. While slowdown has hit footfalls at big malls, it is but a bubble (of malls that have emerged at every nook and corner) that has been pricked. FMCG companies continue to report good numbers and are not thinking twice before raising prices to factor in higher raw material costs.
The global economic slowdown is obviously the reason for the lower growth but the PM has expressed confidence that the stimulus packages announced by his government would provide a strong cushion. Growth in FY09 is expected at close to 7%. He urged the Indian industry to invest more in research and development and boost demand for science and technology graduates and researchers.
Dr. Singh has also assured to double the investment in science from the present 1% of the national income to 2%. Given that that there was too much 'creativity' in the financial world, which created the subprime mess in the first place, the PM obviously believes that investments in productive areas such as science will go a long way in ensuring the growth of the country.
The attempt to boost consumer demand by spending US$ 140 bn on tax breaks alone, US$ 500 for individuals and US$ 1,000 for couples to be more specific, will make up 40% of the stimulus package. The main goal of the plan, however, is to create 3 m new jobs, most of it in the private sector. It be recalled that nearly 2 m jobs were lost in the US in the first 11 months of 2008.
Whether this final shot in the arm will beat back one of the deepest recessions in more than four decades? Our guess is as good as yours.
While policymakers may argue that the very idea of a stimulus means that the fiscal deficit will be larger because stimulus can done either by raising expenditure or giving up revenue, that fact that the government wasted last five years of boom to mend its financial reforms cannot be denied. Wasteful subsides on power and fertilizers, oil bonds to correct its own menace and poorly directed welfare schemes have already cost the government heavily. And mind you, these 'extraordinaries' are not even counted while calculating the fiscal deficit. As such, the actual excess of spending over income is much-much larger than what is reported.
"The economy should turn around by 2010-11," predicts Dr. Montek Singh Ahluwalia, deputy chairman of the Planning Commission. "When will our governments do?" we ask.
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