There would be a short period of turmoil in 2015 but real returns are likely to be positive.
After a heady 2014, returns will be lower. However, real returns are quite likely to be positive, due to low rise in the consumer price index (CPI).
Retail investors have good reason to be scared or the Sensex’s sharp fall on Tuesday.
This seventh worst single-day fall, owing to continuing drop in crude oil prices, is reminiscent of 2008, when there were five single-day drops of 850 points in a single year. So, is it time to get worried?
Most believe the global hiccups are temporary and investors should not worry. Prabhat Awasthi, head of equities at Nomura Holdings, believes the fall in oil prices cannot be bad news for India from any perspective because it will lead to a lot of savings for both the government and consumers.
“This, coupled with positive government action, will mean things will continue to be robust,” he says, adding there could be a short period of turmoil but temporary.
According to investment advisor Gul Tekchandani, although there are serious concerns about the global economy, things would settle within a month or so and the problems for markets won’t get deep-rooted.
“With Europe and a majority of Asian countries like China going through a deflationary phase, only a few countries grow. This includes India,” adds Tekchandani.
The main relief for investors comes from the sharp fall in crude oil prices. According to experts, the savings from crude oil will lead to a fall in inflation and a saving of $10 billion for consumers. The government is expected to save another $20 billion.
“This will allow consumers to save/spend/invest more. Even the government will have more money in its hands,” says the head of a brokerage house. Importantly, CPI numbers have entered a lower trajectory. In November, the CPI hit 4.2 per cent and the year-to-date average in 2013 was 7.4 per cent. In the coming months, the numbers are expected to fall further. In comparison, the average CPI in 2008 was 8.32 per cent, which went up to 10.83 per cent and 12.11 per cent in 2010 and 2011.
Experts believe the global problem will also delay the US Federal’s rate rise cycle. Even if it happens, it will be at a rate that will allow stock markets to discount these. In such circumstances, for existing investors, it is time to stay put.
“It could also be a good situation where investors can buy on dips,” adds Awasthi. The nominal returns might not be so high and action might shift specific stocks and sectors.
While most experts expect index returns to be in the range of 15-20 per cent, if consumer inflation rate continues to be low, the real returns will be decent.
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