It's from the horses mouth! Prime Minister's Economic Advisory council (EAC) has projected the GDP growth rate at 7.7% for Fiscal 08-09. What is more disturbing is the projection of a higher inflation rate. Other concerns are on the deficit front: current account deficit is expected to mount to 3.2% of GDP as compared to 1.5% for the last year, off balance sheet(budget) liabilities are estimated at 5% of GDP. On the top of it their no let up in the hawkish stance of RBI, pointing to further tightening of strings, maybe leading to another round of interest rate hikes. All this does not auger well for the equity markets.
The cost of the economic slowdown will be borne by companies with high capex plans having good exposure to debt, and short sighted investors, who do not invest with a long term view. However, with the higher pay packets for govt. employees, and soon to be followed by PSU employees, consumption driven growth will be robust. Companies in the consumption space will continue to grow, provided they are able to reduce their costs, because most of the growth will be volume driven.
In such circumstances we have to rely on fundamental analysis. Most analysts have downgraded the growth in profits for fiscal 08-09 for sensex companies to under 15%. This broadly translates into a sensex EPS of around 950, and on a reasonable PE multiple of 15-16, this translates into a sensex number of 14250-15200. In a more pessimistic environment the PE multiple can go down to 12, and in a very optimistic environment (provided inflation stabilises at under 7% and crude oil stabilises in the 80-90 $/ barrel range) it may go up to 20. There is every possibility of the sensex going to 12500 levels again, which I feel will be a good time for long term investors to enter, provided you keep your aspirations at a reasonable level of gains at around 20% for one year. Do invest through good equity oriented mutual fund schemes at these levels.
Apart from equities, it will be prudent to invest some money in long term Bank deposits, as they will give you a decent real rate of return once the inflation falls to under 7% by March 2009, as expected by EAC.
4 comments:
Inflation means too much money chasing too few goods.That means the amount of unaccounted money in circulation is 4-5 times the amount of accounted money.The only way to suck out this excess money is to collect the taxes with no loopholes.But is the Government doing this especially in the election year ? The FM says that inflation is caused by the rise in Oil prices.He is misleading the country and avoiding the issue of stringent Tax collection.Kindly point out the flaws in my reasoning.
The EAC projects inflation at 7% by march 2009.Do they have a magic wand.If they have,why was inflation allowed to touch13%.Will not putting more money in the hands of PSU employees fuel inflation.This is just a populist measure disregarding all economic considerations timing it with the elections.The EAC should be more transparent in their strategies to combat Runaway inflation.Your comments please.
The only way to get the stock markets vibrant again is to woo back the FII investors again becau8se of the mammoth size of funds they bring in.What could be the measures adopted to do this and what are the factors inhibiting them to come.
A lot of good information you have provided. Your post will help many people to invest their money in real estate market.
Regards
Commercial Properties In Sri lanka
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