(Not So) Hot Investment Going Ahead

We seem to be recovering from the global correction. The developed equity markets are already trading near their respective all time high. The Federal Bank of US seems to have settled on current interest rates, following the data on GDP growth and CPI (Consumer Price Index) numbers in recent weeks. The ECB-3% (European Central Bank) and BoE-4.75% (Bank of England) have raised their interest rates on Aug 3, 2006, in response to curb the inflation. Recently BoJ (Bank of Japan) ended zero interest policy by increasing interest rates by 0.25%. And recent data on Aug 10, 2006 from US and Japan shows slowdown in both the biggest economies

All these incidents point towards tightening liquidity in global markets. So we will see a slowdown in consumer spending. Now it will become difficult to find buzzing companies, but there are some significant sectors that will perform better and give better returns in short term, viz. Commodity especially metals, Cement, Sugar, Oil refinery (not marketing), Infrastructure – especially due to SEZ. These sectors especially seem to be poised for exponential returns.

Apart from that we have some developed sectors that will give stabilised returns like IT and ITES, Banking and Financial services, Telecommunication, Manufacturing and Engineering services sectors. If you are ready to stay in the market for a longer period of time then you can expect good value accrual and dividend returns. But there are few sectors that are under serious threat especially due to current global scenario, viz. Oil marketing companies, Aviation. Well, all this is on macro level and for neophytes and there are exceptions for each and every sector that will show the results otherwise. We are nearing to the time where the markets become developed ones and give less than double-digit growth y-o-y and Profit margins also come under 10%,

This indicates to a fact that the investors have to come to terms with margin pressures, low profit levels, lower ROI and lower growth from the companies that are listed currently. But that does not mean that India's growth story is over. There are many Mid-cap and Small-cap companies that will probably replace current Large-caps in coming years. Many more companies are yet to be listed that have huge growth potential. But certainly cost competitiveness of India has drastically reduced in past 2-3 years. So the chances are that we will never see the dramatic growth again as we witnessed from May 2004 to May 2006. It will always make more sense in being selective before investing.