At the outset, let me wish everyone the best for 2012. I feel that it is going to be a good year for investors. Hopefully during the year, most of the uncertainties that we have gone through will have reached their logical conclusions. Interest rates would stop climbing and the rupee would stop tripping violently. Let me hasten to add though that a good year for investing does not necessarily translate to immediate gains in the year. I should clarify that my call is that 2012 will provide good opportunities for “buying” equities.
Yes, the world in general and Europe in particular may not heal completely. Maybe the Euro region will head towards an ultimate break down and we in India would have reconciled to living with fractured politics and uninspiring politicians. But businesses have done well in spite of our politics and that should continue.
The passing of each year gives us an opportunity to be wiser with our money and surely 2011 has been one of the most educative ones for all of us. We have learnt that the rules of investing remain the same. Long term means more than 10 years when it comes to investment, unlike what the brokers used to tell us (one year = long term; six months = medium term and less than six months = short term).
Ultimately, we learnt that we should respect the domestic consumer. We thus have to look for companies which predominantly cater to the domestic consumer. We have also learnt that accounting can be funny. So, picking quality management is important. Quality and track record is important. Not that I have anything against the new breed of entrepreneurs, but I think they are too clever by half. They price their IPO’s so high that I can wait for years to simply break even, forget making a return on my investment.
Also, Indian companies buying global companies does not necessarily mean anything great for investors, simply because these companies become hostages to global trends and cycles, which we cannot follow easily. Give me dull and predictable old world businesses. Give me the universe of HUL, Colgate, ITC, HDFC etc. so that I do not need to worry about my investments. For the rest I am happy to keep my money in deposits with banks or in bonds of highly-rated companies.
I also should look at selling my bonds in 2012 when interest rates fall. That money can be put in to good solid funds like HDFC Top 200 or to buying stocks in quality companies at prices that look interesting.
While I stick to “long term”, it is restricted to investment in high quality companies with solid ROEs and great track records. Everything else needs careful watching. I am wary of most companies with domestic management. ‘Trust’ is a word best confined to the dustbin when it comes to investing money. There is always the risk that our money is in line for the next fraud. So, expect the worst and thou shall not be disappointed.
Gold becomes an integral part of my asset allocation. Of course, I know that most of my wealth is devoted to real estate and hopefully, rental yields will go up as demand for new homes does not rise fast enough. So, if housing supply gets limited, my rental yields should go up. Yes, especially if my second home is in Mumbai, Delhi, Chennai or Bengaluru.
The global economy could recover if Euro gets to business by letting a couple of countries default. The risk is that they prolong the agony by temporary “band aid” solutions. So, the world may not do well, but I think we will chug along at seven per cent or so. Inflation should be in single digits for most of 2012, barring some natural calamity which could impact food prices. As demand across the globe slows down, we should be expecting weak commodity prices.
Of course, the rupee-dollar rate will create some short term ripples. Till Indian markets become the toast of the world again, expect a very soft rupee. If the world slows down, we can expect oil prices to be soft, though the weak rupee will not let us enjoy the benefits of the low oil prices. So, do not expect significant gains to materialise in the year itself. However, it could be a good year to pick and choose what we like, instead of merely trading on prices in a bull market.
(The writer is an independent analyst)