This year we saw introduction of currency futures i.e. contracts for buying and selling foreign currencies against INR. Currencies are thought to be one of the most liquid market due to presence of countless players and 24×7 market structure. Even if NSE and BSE close, an investor sitting in US can trade INR at that time in the international derivative markets. INR depreciated till March 2009. This was the time when investors based in developed economies were busy drawing their monies from risky markets like India and also providing returns to their investors at the year closing. However, with some jitters in May and September, one could see money appreciating to Rs. 46 in December.
Many people are busy figuring out this question. Be it fund managers, CEOs or CFOs. These people are required to update their investors, who would like to take stock of the performance of their representatives/agents in the year going by. Let us start our assessment with broad economic indicators and then moving ahead with performance of investments.
GDP – Though the aftermath of the global financial crisis were very much apparent from the GDP numbers in the Q1FY2009. But in Q12009, India’s GDP grew at 6.1%. And with the robust domestic demand, government stimulus packages and persistent foreign investment, India saw its GDP rising at 7.9% in Q32009. This was a very impressive number as the expectations of the market were close to 6.5%. Financing, agriculture and real estate growth stood at 7.7% in Q2, while manufacturing sector grew by 9.2%.
Inflation – The WPI based inflation softened during 2009 to below zero level. However, prices of items of mass consumption (primarily food articles) broke all the manageable levels of government and RBI and rose substantially due to supply side constraints.
Industrial Production and Corporate Earnings – This is best depicted by Index of Industrial Production (IIP). Till May 2009, one could not see the IIP numbers rising above 5% which is way below the numbers of 2008. However, with constant government support, foreign investments and strengthening of domestic credit markets, IIP index started increasing at more than 9% since August. The numbers posted by India Inc also impressed markets in Q2FY2010. Major gaining sectors included infrastructure, real estate, telecom, FMCG and Oil and gas.
World Economies – Unlike on the domestic front, that has seen a sharper recovery from the slowdown, the global economic conditions seemed struggling. Most Central Banks in the developed economies reduced lending rates below 1%. What one could be happy about was recovery in the commodity prices and a reasonable recovery in equity markets However, unemployment remained a pertinent issue.
Having a cursory look at some economic indicators bring us to a consensus that economy has improved and is on the path of accelerated growth again. What more can still be done to continue with the stimulus packages, encourage domestic industries by increasing infrastructure and other big ticket projects and finally taming food inflation, which eats up the earning power of the common man thereby bringing the demand of goods down.
Now let us turn our binoculars to the investment side of the market which has seen a full swing in the year passing by. Year 2009 can be said to be a year which provided excellent opportunities to the traders with its high volatility but may have disappointed many small investors who entered the market at 21000 levels and had high expectations from the year. What is most exciting is that India and China are the only two nations which saw considerable recovery from the losses of 2007-2008. This makes us special but we may have some lessons here too! So let’s begin with our assessment of performance of investment market in 2009.
Market Indices – The first thing that an investor looks at while measuring the performance of its shares or mutual funds is comparing it with the Sensex or Nifty. This is so because everyone wants to know whether the performance was good or bad vis-a-vis a benchmark. Having a growth in value of stocks of 50% is good but what if one says that the Nifty rose 78% in 2009. This is shear underperformance. Nifty tumbled to 2,764 in Feb ’09 but made considerable recoveries in April and May bringing the benchmark index to 4,449.
Gold – Gold has been one of the favourite investments for Indians since ages. But the form of investment in gold has drastically changed. Gold coins and Gold Exchange Traded Funds (ETF) are the new ways to put money in gold. Gold was the one trusted investment that fully served his master. From US$810 in Jan 2009, gold stood at US $ 1,124 on December 14, an increase of close to 40%. Comparing gold in INR terms can lead to mingling of effect of change in gold and INR, so the analysis in US $ terms.
Rupee – This year we saw introduction of currency futures i.e. contracts for buying and selling foreign currencies against INR. Currencies are thought to be one of the most liquid market due to presence of countless players and 24×7 market structure. Even if NSE and BSE close, an investor sitting in US can trade INR at that time in the international derivative markets. INR depreciated till March 2009. This was the time when investors based in developed economies were busy drawing their monies from risky markets like India and also providing returns to their investors at the year closing. However, with some jitters in May and September, one could see money appreciating to Rs. 46 in December. Though this was a direct hit to exporters but helped our infrastructure, oil and capital goods sector in posting good numbers.
Overall year 2009 has been a year of appreciation for the investors. General economic conditions, corporate earnings and foreign capital markets have all shown sign of major recoveries. With advent of new products like currency and interest rate futures, the options available to investors have increased making it easier for them to allocate their risk and hedge. It can be reasonably said that the growth can be expected to continue in the coming year 2010, making sophisticated investors rich and smart investors richer!
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