With the second half of 2012 seeing a revival of sorts for the equity markets, the new year offers much hope
The year appears to be closing on a positive note for the equity markets, particularly the way the second half has turned out. We saw a fair amount of upheaval in 2012 — the markets saw an upswing and, then, a trend reversal; there were significant changes on the policy front, too; and gold rallied to a new high. Factors like widening current account deficit and rising inflation have been a cause of concern, but continuous policy actions from Reserve Bank of India have been of help.
For the first half of 2012, the so-called safe-haven instruments or fixed securities were much sought after. However, after July 2012, the demand for equity investments rose, resulting in a decline in government bond yields. Also, due to high interest rates, household expenditure/spending was lower. Consumers deferred their durable goods purchases and pre-closure of loans was also widely considered. One of the best investment options was gold, proving itself to be the ‘Mr Dependable’ of 2012.
Major policy changes
The RBI effected three revisions in the Cash Reserve Ratio (CRR) to ease the liquidity position. A major movement on the policy front came in the form of foreign direct investment (FDI) as the government announced that it is opening up the domestic airline, retail and media sectors. Multinational companies such as Carrefour and Walmart can now have 51% ownership. Foreign investors can now take up to 49% ownership in domestic air carriers. In case of broadcast media, foreign media companies can increase their holding to 74% from the previous limit of 49%.
Expectations for 2013
The year 2013 could well be one of the equities. After a long haul from 2008, it seems that the markets may see a bull run, considering all the positive sentiments. There are several reasons to expect a bullish outlook — low interest rates, gradual increase in consumer spending, the continuing reform process, and so on.
With the equity markets developing a positive outlook, equity mutual funds will surely reap the benefits. Mutual funds should see fresh inflows of funds and rising assets under management (AUMs) from the existing investments and, together, that should do a whole lot of good to the industry.
Gold might see a slight consolidation if the global situation improves. However, gold will always remain