From audacity to fortitude

Updated: Dec 31 2006, 05:44am hrs
The investment scenario in India has been phenomenal, and quite bordering on the audacious. In many ways, 2006 will be once-in-a-lifetime year. Investment avenues saw spectacular growth. Real estate climbed on the back of increased income levels, ample credit availability and high demand. Mutual funds mopped up one of the highest levels of money from the market. High oil prices saw that gold was strong in the year. Corporate results and even stronger economic growth numbers propelled the markets. Though not as intense, the commodity and the fixed income avenues also buzzed.

This was also the year where investors showed tremendous boldness. After the May mayhem when the markets were under a huge selling pressure, with many even writing India off, the markets turned around, and how. This was fuelled by solid performances and without the full support of foreign institutions. Events that typically shake the markets -- the Mumbai train blasts, the North Korean nuclear tests and a mini sell-off in Thailand -- did not deter the resolve. Clearly, the market has become resilient and is not ready to get shaken by such "minor" shockwaves. And even when a strong correction came through in December, market denizens were unperturbed, and saw this as a valid market move. All eyes are on the long-term India growth story.

On the corporate front, Indian audacity can be best exemplified in the number of acquisitions made abroad. Indian entrepreneurs are thinking -- and acting -- big. They have seen the need and opportunity to get proactive, stop cribbing about protection and go overseas to fuel growth. The Tata Steel bid for Corus, even if it does not go through eventually, demonstrates that spirit.

The coming year is also expected to see the continuance of the spirit. However, fortitude is expected to be the theme in 2007; asset bubbles witnessed in 2006 are expected to pop out. Corporate earnings are expected to be strong. However, as the base grows, maintaining the same rates will get difficult, especially when most are working at near capacity levels.

There is a consensus amongst analysts that interest rates are likely to rise and this will have an impact on the markets, albeit not very intense. Apart from corporate performance, inflows into the market will also have a bearing on the direction. While FII allocations are getting decided, the fact that the 1000th FII registered in late December, suggests that foreign flows will keep coming in. Overseas and local funds will keep real estate rates steady, while RBI works to keep asset prices in check. The most significant development could well be the opening up of the pension sector. This will add the much needed social dimension for Indians at large, and funds garnered are expected to find their way into the stock market.

The India juggernaut will pull through 2007 as well. So, while we are at the doorstep of what promises to be another fabulous year, FE Investor wishes all its readers a very happy and prosperous New Year, one that is laced with cautious optimism and wisdom to secure the best.