"The individual
investor should act consistently as an investor and not as a speculator."
- Ben Graham
While staring at the world of
the past year, I was desperately trying to look for any bright spots and I
found nothing much except my unwavering hope. The lower bids in the recent
months at the AP Govt.’s & Indian Govt.’s auctions on the solar projects is
an important and promising
development in this field, esp. with the falling crude and commodity prices.
A New Neutral
has set in the world with an overall lower trend growth rates. Global growth
remained weak and at an uninspiring range of 2.5-3%. Falling oil prices, low
interest rates, massive monetary accommodation and lower global aggregate demand
has contirbuted to a continued sluggish
growth. The effects of lower oil prices and expansionary monetary policy could
prove much more dramatic than many anticipate.
Chinese engineered soft-landing seems to be having hiccups with a
miscalculation of the
ground level. This could mean not just a hard landing but also an
inevitable crash though it has the tools to manage, only time would tell us how
it fared.One shouldn't forget the fact that Chinese economy has always been managed. By concentrating more on the quality parameters, private/foriegn participation & transparancy the way forward won't be all that easy & controlled.
EU seems to be determined
with its “whatever-it-takes-attitude”
and pump in more liquidity. While Japan is unsure of its
situation and its demographics are not helping much either. The US is a sole large economy seems to
have put a brave face in this adversary.
Fed rate hike would be
gradual and prolongedstretching
into 2018-19 and follow a lower trajectory; the neutral policy rate is well
below the historic levels – a new neutral. Post the initial hike, it would
proceed very gradually, all the while attuned to the global implications of
their actions.
On the domestic front, the
lower commodity prices have been a big boon for the margins but the continued
weakness in the demand is a concern. Capacity utilization is at
multi-year low in the manufacturing and we could
see a gradual improvement in the demand from the 2nd quarter of the year.
What’s in it for you?
This never-seen-before
environment demands a more dynamic strategy and a multi-asset allocation is
needed to beat the volatility.
Equity: The last leg Dec rally helped post positive returns on the monthly basis
and covered some ground on the yearly basis, though generating negative returns. The major indices
never delivered negative returns in consecutive years since 2001 and hope for
the history to repeat.
The market provides ample opportunities
for entry and any systematic approach is recommended with a horizon of 1 year.
Debt: The central banker still has room for rate cuts, though
he would keep an eye on the US Fed and the inflation greatly influenced by the
oil/commodity prices.
Stay put in long duration funds with a play in the mid &
short term for arbitration as the spread narrows between the repo and benchmark
yield.
Commodities: Commodities would bottom-out this year along with Oil, limiting the
volatility. Oil could well see a little uptick from the current sub-40 levels
while gold would continue to be under pressure.
Currency: Strengthening of the USD continues and as the volatility settles
across the other asset classes, it would reach equilibrium, another new norm.
