Having said that 2010 looks to be the trickiest of years to play from asset allocation point of view, here’s our outlook on the key asset markets in India.
Both the years 2008 and 2009 have given us bitter and sweet memories and therefore having a circumspect attitude towards the present year 2010 seems completely natural. In addition, there seem to be quite an uncomfortable balance between the positive and negative factors confronting the Indian economy.
For instance, the risk of continued high inflation and government’s unwillingness to press the button just yet on rate tightening; stock market valuations, which are amongst the highest in the region and perhaps even among emerging markets as a whole and corporate earnings fatigue which is sure to set in on the back of high base of 2009 and consequent seemingly lackluster results in first half of fiscal 2011. On the positive side though, there is apparent demand from the consuming class for all kinds of consumables (FMCG), possibly a nice pick up in the durables (discretionary) segment; positive corporate outlook of the medium term evidenced by opening up of the hiring season; fast rising rural incomes on the back of higher agri-commodity prices should all reflect in the strong performance along the consumer value chain. This apart, the ability of the current government to drive through reforms and continue the infrastructure push it started late last year should put even the capex heavy sectors in demand in the medium term.
However, this fine balance seems to be tilting towards making a case for investments in equities on the back of lackluster expectations in the fixed income space over bulk of 2010. Similar arguments can be put forth for gold (after its linear run up over the past 4-5 years) and real estate (prices of which haven’t cooled down as much as one might have expected).