ithought’s market wrap-Year end special

Year – ends have their own way of playing out on the investor psyche. The year end is not really an event of economic significance. Not much changes on the economic front when the calendar turns into a new year. Yet, there are different schools of analysis predicting how investor behavior will play out in the New Year. Investor perception is what undergoes a transformation. Here is why. Global fund managers create new strategies every year to woo their investors. A new story or investment theme is a compulsive need for the global fund manager to retain existing investors and attract newer ones. So they invariably change tack to present newer themes and raise investor expectations.

Let us see how global strategies played out in recent years. 2010 was a year when global investors were aggressively investing in India. They bought Indian equities right to the last working day of 2010. Yet, 2011 saw the global investors selling Indian equities from day 1 and moving money back to developed markets. They simply shifted tracks in the New Year in line with their global strategy for 2011. Through 2011, global investors remained sellers of Indian equities. The sensex sank 25% through the year and investors saw red all over their equity portfolios. 2012 could well see very different global investment strategies playing out. The Indian markets await the trend lines to emerge in January and domestic investment strategists seem to be sitting out their holidays waiting for trends to emerge. It is in this state of flux that we at ithought believe in taking a clear view and getting heard out by investors. This is no time to sit and wait for clarity to emerge. The valuations are adequately compelling to take an investment call ahead of the curve. ithought chooses to place our views on record before the global view emerges.

Six factors merit a favorable view of equity as an asset class.

1. The domestic interest rate cycle is set to head south.

2. Inflation has already seen its worst and can fall in 2012.

3. Growth will return as domestic liquidity is set to ease in 2012.

4. The macro numbers of India are much better than they are made out to be.

5. A fall in commodity prices will greatly benefit our economy.

6. Importantly, valuations are attractive and compelling.

The cumulative impact of these factors certainly makes Indian equities far more attractive in 2012 than they appeared in 2011. This simple play of cumulative factors seems to be overlooked by our domestic investment community and strategists. Therefore, our fund managers are advising caution while the investment advisors are busy selling capital protection, tax saving bonds yielding 12%, gold ETF’s and many more exotic investment options. The logic of absolutely shunning equity risk and seeking safety of other asset classes is not born out of intelligent forecasting. It is a product of business interests and marketability of ideas. We at team ithought are convinced that these strategies are rooted in mediocrity and will leave investors unhappy in 2012.

We believe that investors must boldly take equity exposure now. It is also a time for restructuring existing equity portfolios and fine-tuning them with smarter investment bets. At one level, investors must make their existing capital deployed in equities into more productive assets. At another, they must carefully evaluate if they can take on additional exposure

The ithought way has been working on our investment books with a focus on what will work for investors in 2012. Our investment process is all about orienting investment books towards the future and preempting the markets. We believe it is always better to be early than too late.

We hope that investors see the merit in being early to the next market rally. We suggest you take an objective view of the shift in investment thinking that will take place through 2012. The ithought way is a process that will help you navigate the year 2012 with greater objectivity and strategic thinking.

Happy investing!

Shyam Sekhar,

Chief ideator and mentor

ithought.

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