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OVERVIEW Investing For Tomorrow Both political and economic uncertainty have made prediction impossible. Nor does the past hold the genetic code of the future. Look for new routes to profits. By Roshni Jayakar
The Nervous 1990s are giving way to the Turbulent 2000s. With the economy writhing in the throes of the worst-ever recession in the post-liberalisation era, and India Inc. not showing any signs of an upturn, you can't be blamed if the question of where you should invest your money leaves you baffled. And to make things more uncertain, there is another election round the corner.
These are tough times. Not for big-time punters who always seem to have oodles of the stuff to throw around. But for the retail investor-you-who wants to see his savings earn comfortable returns. Enough to meet realistic goals, such as buying a house or ensuring a good education for your child. The BT : Investment 2000 is aimed at guiding the retail investor through these difficult times, analysing the host of investment channels. We cannot guarantee you a bonanza-nobody can-but we will make things less puzzling than they may appear to be right now. Begin by looking at the bright side: another election. No, that is no joke. Elections bring good tidings for the stockmarket. History proves that. In May, 1996, during the countdown to the elections, the Sensex, at 3,423, popped up 6.50 per cent. A month after the elections in June, 1996, the gains sobered down to 5.40 per cent. Earlier too, election-time-despite the accompanying uncertainty-has done the bourses good. Agrees Hemendra Kothari, 53, Chairman, DSP Merrill Lynch: ''The history of stockmarket movements during elections-save the last time, when we had a hung Parliament-shows that the stockmarket moves up in the run-up to an election.'' If that is true, why worry? If elections are around the corner, isn't a bull-run imminent? So, buy when the government falls, and book your windfall when the elections are announced. Quod erat demonstrandum. Not really. If things were so easy, each one of us would be a Warren. Or a George. Sorry, folks, but it's time to cut to reality. Conventional wisdom suggests that when the markets are down, it's time to buy. But buying blindly is no solution. You might end up being saddled with a junk portfolio. First, you need to understand the investment climate. Finally, after nearly two-and-a-half years, things are improving. Maybe it's time to buy stocks. Points out Rahul Mehta, 32, Head (Investment & Treasury), Banque Nationale de Paris: ''The fundamentals are improving, and scrip-prices are falling. This makes valuations cheap. As a strategy, it is time to get fully invested in some of the low-priced blue-chips.'' The best time to invest, they say, is when there is blood on the streets.
What stocks do you invest in? The key is to be selective. Don't go for yesterday's champions; try to spot tomorrow's winners. For instance, last year, the market capitalisation of infotech stocks went up by 202.20 per cent; pesticides and agrochemicals, by 98 per cent; pharmaceuticals, by 28.60 per cent; and food, beverages, and tobacco, by 27.70 per cent. In contrast, the market-cap of hotel stocks (-41.20 per cent), steel (--24.90 per cent), automobiles (-37.30 per cent), and diversified conglomerates (-36.60 per cent) dipped, reflecting the New Order. Says Bharat Shah, 37, Chief Investment Officer, Birla Mutual Fund: ''The world economy is passing through the fifth wave of economic revolution, characterised by an emphasis on intangibles, and innovation in the areas of infotech, biotech, services entertainment, and the media, et al. The success of an investor depends on his catching the point of inflection of the new wave at the right moment and earning a disproportionate income. If he does so, he creates a disproportionate amount of profits for himself.'' In other words, innovation and speed are vital for looking at stocks in the hot new sectors (see Stock Up On Sectoral Plays). What if you are not the risk-taking type? Then low-risk, fixed-return instruments are what you ought to look for. Bit of a dampener there, though. On March 1, 1999, in a lightning-quick move, the Reserve Bank of India (RBI) cut the Bank Rate-the benchmark rate of interest at which banks borrow from the RBI-by 100 basis points to 8 per cent. That has translated itself into a similar cut in the deposit-rates of the commercial bank as well as bond rates. In fact, the I-Sec Bond Index notched up an annualised return of just 1.58 per cent in April, 1999, compared to 8.20 per cent in 1998. So, squirrelling your savings in the fixed deposits of companies or banks is hardly a winning proposition. But the bond market (see Lend, But Blend) is the best avenue for hedging equity risks.
Suggests Gopal Khaitan, 25, Manager (Fixed Income Investments), Lodha Capital Markets: ''The retail investor should retain a part of his assets in fixed-income instruments.'' Right now, falling interest rates may not make such investments look appetising-even as a hedge-but there is a whiff of good news. Since interest rates are near the trough, the only way they can move is up. Hopes R. Ravimohan, 41, CEO, CRISIL: ''Interest rates should remain where they are, or move up.'' For one, the government could mop up excess liquidity from the banks. Then, if the feeble signs of a recovery become stronger, companies may begin borrowing money. Both developments would firm up interest rates. If you are too busy to actively manage your own portfolio or not too sure of picking the best stocks, the mutual fund is a safe bet. In the past, Indian investors didn't quite fancy mutual funds, preferring to invest directly in stocks. But, over the past 2 years, after their performance improved, they are attracting investors in droves. They offer you a way to share the upside of the market and yet, minimise the risk to a large extent. Several funds are performing consistently, with many of them even out-performing the stockmarket. What is also reassuring is the fact that a breed of credible fund managers is growing rapidly. Argues S.K. Mitra, 51, Director (Financial Services), Aditya Vikram Birla Group: ''Mutual funds are a preferred tool of investment because they are driven by intellectual capital and knowledge-bases, and are quite adept at providing hi-tech services to clients.'' The latest shot in the arm for the mutual funds has been UB 99. Mutual fund dividends are now tax-free. Open-ended, equity-oriented mutual funds have a dividend tax-exemption. And the long-term capital gains tax has now been reduced from 20 to 10 per cent. All these are added incentives for investment in mutual funds. Sure, you still have to choose the right fund: should you go for plain-vanilla growth funds, or specialist sector funds? Balanced funds or growth funds? Choosing the right fund depends on the kind of risk-reward equation an investor is looking for (see Rake Up The Returns). Warns Abhai Aima, 37, Vice-President, HDFC Bank: ''Asset-diversification or -allocation is a new concept for the Indian investor.''
BT : Investment 2000 also takes you through the trio of other alternatives-real estate, insurance, and gold-that may help you do a better job of beating inflation. The prospects of investing in real estate are set to improve with the passing of the Urban Land Ceiling Regulation Act, 1999, and the sops to housing in UB 99. There is a link between an euphoric bourse and investment in real estate (see Rebuild Your Purchases): prices dropped when the stockmarkets took a dip in the last 3 years. Predicts Hemal Joshi, 25, Senior Investment Officer, Kotak Securities: ''Now that the stockmarkets look set for a revival, the real estate sector will also see growth. Prices are expected to firm up over the next 18 months.'' As for gold, it is traditionally looked upon as a safe investment-not one that will fetch high returns. That trend is likely to continue in 1999. Unless the rupee depreciates, don't expect gold prices to rally. Our story on gold (see Don't Go For The Glitter) also examines some gold-linked investment schemes. And, yes, don't forget insurance as an option (see Make It A Policy). Still confused about where you should put your money? Here's one tip: whatever you do, don't try to predict where the stock or bond markets are headed. Instead, look at your risk-return profile, and map your asset-allocation to it. Then, stick with it. Cautions HDFC Bank's Aima: ''There's nothing that gives you zero-risk and high return.'' The key is to be conservative in the short term, and aggressive in the long term. No matter what happens then, chances are that you will stay on your feet after the ride |
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Are you the type that gets
big thrills on a roller-coaster ride? Or does the idea of being on one induce a bout of
nausea? Does your pulse race when the Bombay Stock Exchange Sensitivity Index (Sensex)
rises or plunges by 500 points in a span of 48 hours? Or does it make you quiver and reach
for support? Have you given up hope of a revival in the property market? Do you think that
the gold you have stashed away is losing its burnish? And with your fixed bank deposits,
are you fretting about not even beating inflation? In short, are you worried about where
to put your money in 1999-2000? If so, you aren't alone. 
Rajiv,
27 years; PRIYANKA, 25 years
Pranab, 32
years; Nabonita, 30 years; Kunal, 4 years
