2012 may be the year of reckoning according to the Mayan calendar but for the Indian investor it is going to be a year of opportunity. Most of the asset classes have corrected significantly, interest rates have peaked and growth after sputtering for close to two quarters has shown signs of some resilience.


2011 was more of a watershed year. The global economy slowed down significantly led by the crisis in the Euro zone. It also witnessed the historical downgrade of USA by Standard and Poor. As the year ended credit ratings of several major economies were on watch with negative bias.


Year 2011 was the year in which India really slowed down. GDP estimates which experts predicted would be in the upper fringes of +9% at the beginning of 2011 welted in the face of an overall industrial slowdown and the same experts are meekly admitting that it may come below 7 % for 2011-12 [Financial Year]. Industrial production tumbled and corporate profits shrank by more than 20% in the second quarter [July-Sep 2011].Fiscal deficit [Government Spending] has reached 88% of the target in the 1st eight months. The only surreal metric is the export figure which grew at an astonishing +30%. The mystery was finally solved when the government admitted they had made an error in reporting. India is the software capital of the world but our Government blames a software glitch for overstating export figures by US$ 15 Billion [Rs 75,000 Crore!].In early 2011 a similar mistake was committed while calculating GDP. Inflation figures, Industrial Production Figures, et al have Brownian motion, with figures ricocheting everywhere month after month.  Fiscal prudence has been thrown to the winds. Policy initiatives are palliative rather than progressive or visionary.


Year 2012 is not going to be any better. European economies are predicted to go into recession [Recession ensues when a country’s economy has negative growth for 2 consecutive quarters]. USA is showing signs of revival but the signals are conflicting as there is no letup in job losses or the downturn in the housing market. From our country’s point of view, expect inflation to moderate in the first half and growth numbers to look up from mid 2012 once RBI starts to ease interest rates. But we may see pain again towards the end of 2012 as inflation raises its ugly head again.


So much for negativity. So why is 2012 the year of opportunity? The prices of most asset classes dip much before the economy hits the bottom and similarly rebound much before people realise that the economy is out of doldrums and has started growing. This is reason enough for most people to make an error in timing the stock market or investing in gold or mutual funds. When everything is gung-ho there is a burst of confidence but as fear is rife we tend to be over cautious. You can reap rich dividends if you invest wisely in 2012.


Let us take a look at different asset classes and see what investment strategy is appropriate for each:

The clamor by industry has been rising for easing interest rates. The RBI governor has steadfastly held on to his view that inflation has to be tackled by killing growth since the government has no idea how to tackle supply side issues. Inflation stayed above 9 % in every month of 2011. The only reprieve is a highly skeptical near zero food inflation number in the last few weeks of December 2011. Is it a Software Glitch or is it for real? Index of Industrial production showed a negative growth for November and this has made the man of steel, Mr.Subba Rao melt a bit and he has indicated that he may bring down interest rates soon.  So this is the perfect time to invest in FDs, Bonds, Debentures, Fixed Maturity plans and Debt related plans of Mutual funds. The Tax Free Bonds of REC and NHAI are perfect for investment. As interest rates go down Bond prices go up. So you may be able to enjoy high interest rates for a few years and then get an opportunity to sell off at a good profit once interest rate cycle hits the bottom. Those who swear by FDs should look at locking money in 5-8 year FDs. If you opt for short term [1000 days and less] you are likely to be caught in the lower spectrum of the interest cycle when the FD comes up for renewal. Interest rates will move down for sure from March 2012. Do not expect Inflation to let up. We may see some easing but Inflation is here to stay as oil and commodity prices are not going to go down much in 2012. NRIs never had it so good. A near 20% fall in Rupee, NRE Deposit rates at +9 % and a slew of NRI friendly policy initiatives from the government.

Stock Markets: Year 2011 opened with a lot of vigor for the stock market. Arbitrary figures like 25,000-30,000 were predicted for 2012. The chest thumping came to naught. We ended 2011 with a whimper. Stock markets were down 25 % when the year ended. For diligent investors this is in fact an opportunity. Value has started to emerge in many stocks.