We have finally crossed year 2011 as well. If you look back in this year, the gossip mongers, news agencies did a wonderful job in scaring the * out of us in their attempt to appraise us of latest global news. At one time it was sounding to me if I could make through 2011 without a world war or end of the financial institutions. How many times we would have heard ‘End of Euro’, ‘End of Middle East’,’Oil Crises’, ‘Currency Crises’, ‘Financial Services Crises’ and so on… and look we are still there with almost every one with their jobs still secure and pay checks still being paid regularly.
So what are the lessons learnt in 2011 which we can capitalise upon to advantage in 2012. Perhaps the most important one is keeping nerves of steel and having a reasonable long term perspective for all your investment & financial decisions. There may be a couple of the people who may read this blog note and may realise that they lost a material amount by loosing their patience.
In the current volatile climate it has become indeed very difficult to forecast what would 2012 contain. However, looking into whats currently going on, I can reasonably anticipate the following:
1. Inflation has started to cool down now – I anticipate that by end of first quarter of 2012, the so called Mehangai should start to cool down.
2. The requirement to keep interest rates at unusually high levels would no longer remain from around end of first quarter / half year of 2012. RBI should start reducing interest rates from probably mid 2012.
3. More clarity should come on the current highly volatile and confused global economic news. The outcomes can be either way. Either the Eurozone may kick out a couple of countries or try to sort their ways out. It may result in some very volatile months while would directly affect Indian markets as well and hence a call upon your patience.
4. Hopefully the Middle East crises may start to settle down providing some respite to the furious oil prices.
What can be done now to tackle with 2012 ?
- There are currently a lot of schemes prevailing in the financial markets providing high level of interest rates for Fixed Deposits. Investors can try to lock their funds for long duration 5-10 years on these high level of interest rates. This will provide a secure interest income for the forseable future.
- Monthly Income Plans(MIPs) can be used as an interesting investment vehicle. As the interest rates would reduce in 2012, it would result in bond prices to go higher. Lower interest rates may also trigger stock markets to go higher as the companies would show higher profits due to reduced interest expenses. MIPs invest a significant portion of their money into bonds (75-90%) and the remaining in Equity markets. Hence 2012 is presenting a probable inflection point for MIPs to gain from the scenario described above.
- Those investing directly into equity markets or mutual funds, should continue to do so via their SIPs or regular investments. Currently you may find a lot of red ink sprayed across your portfolios. However, a couple of years ahead you may realise that it would be the period between 2008-2012 that would be giving a blasting return. This may equate to years 1998-2003 where markets were very low and the returns were visible in years 2005-2007.
- Real Estate Investors may avoid paying advance money to their builders and park their funds in short term money market funds which may provide around 9% returns. You can read my other blog note at http://insight.banyanfa.com/?p=62 on how to use these funds to get more out of your idle money. This high level of returns is owning to high interest rate scenario in the current economy.
- NRI investors can take advantage of the recent deregulation of NRE fixed deposits and high exchange rates. Earlier NRE fixed deposits never used be more than 4%. Currently many banks have increased it to 9.5% levels. Moreover interest on NRE fixed deposits are not taxed in India. Probably NRIs would be in the best possible situation. They are experiencing life time high exchange rates couple with life time high tax free interest rates in India. What else they could ask for !!
On this note, I would like to wish you all a very Happy, Prosperous, Safe and Less Volatile 2012 and hopefully we all shall see 2013 (considering the rumours around end of earth in 2012). We all have worked hard throughout 2011 and we do deserve it !!