Some views & Facts over Investments

The crisis which started from US sub prime mortgage market has ultimately grown into a full-blown global credit, liquidity & confidence crisis. The risk has moved from an individual level to mortgage lenders to corporates to investment banks to overall financial system and even countries. India has surely not remained untouched by the unprecedented global financial crisis. Globally, equity markets have witnessed heavy correction & Indian Equity Market is no exception. Sensex has corrected by over 57% so far in 2008. Due to liquidity crunch, FIIs have withdrawn $12bn from the Indian markets (CYTD) after infusing a record $17.4 bn in calendar year 2007. Being one of the best performing markets in 2007, Indian equities have seen one of the sharpest corrections. On the macro front, however, India is on a better footing compared to the start of the fiscal year. With crude correcting by over 55% from its peak of $147/bbl and other commodities also correcting (by 40-50% FYTD), inflationary expectations have fallen sharply. Inflation has fallen from peak of 12.9% in August to ~11% & given current scenario, it is expected to fall to single digit by end of December, to 6.5-7.5% by end of FY09 and further to 5% by first quarter of FY10. India's Current Account & Fiscal Deficit will also improve with fall in crude oil. With inflation cooling off, RBI seems to have rightly shifted its focus from price stability to economic growth. It has aggressively cut Repo Rate by 100bps and CRR by 250bps in a very short span. It has further relaxed ECB norms, made NRI deposits more attractive and announced quasi-cut in SLR. Globally, Central Banks are aggressively fighting the crisis. However, despite best efforts, the global economic situation will still deteriorate with US entering a phase of recession. India, though not completely decoupled, but is adequately insulated and is in a better position to cope with the crisis. India is a domestic-driven economy with relatively low leverage and low export dependence. Indian corporates are in good shape, having enjoyed a number of years of high profits and this coupled with low leverage, would allow them to weather a slowdown. The infrastructure boom in India is likely to continue, although at a slower pace led by near-term funding issues. Consumption comprises two-thirds of India's GDP and is likely to sustain its average growth rate led by increasing exemption limits for personal income tax, rising of tax slabs, farm loan waiver and the he 6th Pay Commission. India's GDP growth may moderate to 7-7.5% in FY09, however, what one needs to understand is that even with a 7% growth rate, Indian will remain one of the fastest growing economies globally. Policymakers have also indicated their willingness to support economic growth. The stage is set for monetary easing which has, in the past (FY01-03), led to growth revival, though with a lag. Given the rapidly changing dynamics in global financial markets, we expect RBI to be more explicit in its analysis of the domestic scenario and give its near-to-medium term guidance and outlook on economic growth, inflation, exchange rate stability & measures to ensure longer-term stability of the Indian financial sector. Indian market valuations have become attractive at 10xFY09E. It is much below its historic average of 18 times. Indian market has been commanding premium over valuations of other Emerging markets due to a more diversified earning base, higher Returns on Equity (RoE), consumption driven growth story & low reliance on exports. Recently, Indian valuation premium viz-a-viz other emerging markets have narrowed, thereby making India more attractive. Current times are surely tough for all of us, however, it is important to maintain our calm in these times & strategize our investments with long term horizon. If we analyze Sensex return for the last 15 years & keep a 10 year investment horizon, then Sensex has always delivered positive returns. We being long-term investors in the market, we should not be too much concerned about short-term market movements since despite the current correct, Sensex has still delivered an attractive 21% CAGR growth (FY03- 24th Oct'08). BSLI laid adequate emphasis on the quality & liquidity of it’s investment assets & you can be rest assured that your money is in safe hands and are invested in good quality assets. Every investment/productive assets needs time to deliver positive results. It is like planting a seed & watching the tree grow & yield fruits or watching an infant grow into an adult. Finally, a good investment strategy and timely execution of the strategy are important for achievement of goals. It is up to the investors to ensure that they develop the right strategy & execute it in a timely manner to reap maximum gains. That's what professional fund managers, are here to help you with.