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New year, new opportunities

Jan 1, 2009

"We will open the book. Its pages are blank. We are going to put words on them ourselves. The book is called Opportunity and its first chapter is New Year's Day." This anonymous quote aptly summarises the sentiments of investors like us who are looking forward to ushering in each day of this New Year without forgetting the past and fearing the future, but taking in every opportunity that presents itself for the long term.

Funds waiting for opportunity in Indian real estate
As per global real estate consultants, Cushman & Wakefield, India may benefit from the increased fund allocation to Asian real estate sector by global investors in 2009. As per the firm, even as the total amount raised by private equity real estate funds between January and November 2008 fell by a third to US$ 57 bn from a year ago, the allocation towards Asian markets increased to 28% from 19% in 2008. As a result, funds available for investment in Asia have increased from US$ 15.9 bn last year to US$ 16.2 bn in 2008. Also, Asia and rest of the world (28%) edged ahead of Americas (25%), Global (24%) and Europe (23%) in terms of geographical allocation by investors for all new real estate funds closed in 2008. Of this, India and China are top two contenders for Asia-focused funds.

What is even more interesting to note is that the money seeking entry into the Indian real estate market is essentially with a long term horizon and will therefore look for some further correction in prices. After having seen a five year bull run ending in 2007, the Indian real estate sector has faced tough times in 2008 with sales flagging and lack of debt funding. However, some stability and transparency in real estate pricing may unlock good fortunes for the sector in the coming months. The government's recent proposal to consider a bill on regulated valuation of real estate in the Parliament seems a step in the right direction.

'Gold'en opportunities
Gold prices recorded eighth annual gain in 2008 on expectations that the dollar and global economies will weaken, bolstering demand for the metal as a hedge against further declines in currencies and economic growth. Gold prices rose 4% in 2008 as nearly US$30 trillion of funds invested in equities were wiped off. The fall in interest rates also spurted the demand for the yellow metal after the Federal Reserve cut its benchmark interest rate to near zero percent. As per Bloomberg, the metal has been the second-best performer in the index of 26 commodities this year, behind cocoa. Going forward, economists expect uncertainty over performance of other asset classes to continue to attract money to gold from investors seeking to diversify their portfolios.

Bond benefits
Indian long term bonds are expected to have their best year in 2009 since 2001 as cooling inflation will allow the central bank to further cut interest rates. The benchmark 10-year yields slid to the lowest since May 2004 (currently 5.3% as against 7.8% at the end of 2007) while bond traders continue to bet on lower borrowing costs as India counters an economic slowdown following recessions in the US, Japan and Europe. The government has also predicted the economy to expand at the slowest pace since 2003. It may be noted that nine consecutive weeks of declines in the inflation rate (measured in terms of WPI) prompted the RBI to cut benchmark interest rates three times in the last quarter itself. As movement in bond prices are inversely proportional to movement in bond yields, the former are expected to chart substantial gains this year. According to Bloomberg, 2008 was not a bad year for bonds as well. Ten-year bond yields slid 2.5% in 2008, the most since 2001, when they dropped more than 3%. Indian government bonds across maturities returned almost 21% this year, being the best performance among 10 local-currency debt markets in the Asian region.

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