Dr. Sanjiv Agarwal

2010 is now a past and we are now in 2011 hoping for a bright future, growth and sound financial stability. 2011 may not be all good and no bad but we need to manage our finances keeping in mind that India’s economic growth is almost a certainty but it may not actually turn out to be reason for enhancement of money or wealth in our hands. While 2011 holds lots of opportunities, it is expected to pose two major challenges on financial front- higher interest rates and inflation.

It may be easy to borrow but loans may be costlier and repayments would be difficult due to squeezed liquidity. So it would be advisable to borrow discreetly only when it becomes necessary- be it temporary deemed loans on usage of credit cards or taking a housing loan for second house. One needs to plan debt so as to have some savings too. Savings, besides saving tax would also be of great help in rainy days lest you may not default in EMIs or be looking for cash in case of other needs.

Inflation is going to be a critical factor in our lives, as ever. It’s a slow poison which we do not immediately realise as it bites in bits and pieces. But the cumulative effect is substantial. Even the petroleum products alone will cause enough of inflation coupled with higher cost of living, as we move into high cost economy. Then, we also have bullet dozes in the form of prices of commodities / services like onion, milk, sugar, airfares and so on.

In 2011, the question that would come to mind is where to invest! Going by the likely trend of rising interest rates, it is expected that return from fixed return instruments will be more robust as a result of which one could have positive growth in post inflation returns , as compared to past few years. It may not be surprising if the returns are in double digit. This could also put pressure on savings in other avenues. Investments in long term infrastructure related savings will also rise consequent upon demand for money in this sector. However, much would depend on Government policies. Investments in reality, infrastructure and information technology will grow owing to growth in these sectors.

Presently, stocks seem to be fully valued and the markets could see a correction owing to inflationary pressures, liquidity crunch and interest rates. Globally, factors such as Europe, North Korea and US economy will continue to be the risk factors and as such 2011 may not be easy for stock markets.

Given the present scenario, it would be wise to skip the sectors like reality, consumer goods, telecommunication etc but eyes can be focused on sectors such as information technology , financial services, banking, infrastructure, textiles, hospitality etc. One needs to do some cherry picking and select the stronger ones by sticking to high quality stocks.  (Avoiding sensitive sectors and companies)

Thus, instead of a general approach, stock or company specific focus would be better. Investee Company having huge debts and external borrowings may better be avoided and so the companies dependent on US market. Also, all scam and sham companies would be certainly no-no in portfolio. One can also look to some good PSU public offers (like the coal India) in coming months.

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