3 Simple Steps to Become Rich

Here r the 3 basic steps of Wealth Building.
Hope u will like it..
Follow these simple steps for building a Wealth. No Complex theories or Investment Strategies required...
these steps follow KISS formula.... well it means.... "KEEP IT SIMPLE STUPID".....!!!!!
HAHAHAH..... just kidding.....

1. Pay Off all the Debt and Stay away from New Debt -

this is the first important step in starting a wealth building. u have to first pay off all the debts before starting a serious wealth building, (All means all Except Home Loan), Credit Card Debt is the worst one. so first of all payy off all the credit card bills. after that comes other loans like Car loans, vehical loans, personal loans, shopping EMIs or any other kind of debts. Paying off debt is an Investment. no need to pay off whole the home loan before starting wealth building. ...y? that we will discuss in some other article. so first pay off all of your debts. No matter how many years it will take... but this is important. may b it will take 3 years or 5 years or may b more.... but don't worry..... paying off all the debt is necessary and proven very effective scientifically and mathematically..... Don't think that my Car loan is due for next 3 years and it will give me a Tax benefits for Debt.... if u can pay off your Car loan within a year don't wait for 3 years u fool...!!!

Stop Borrowing Money NOW.....!!!! yeh.... this is very true... take a Scissor and cut down all of your credit cards. Don't pamper yourself by saying that Credit card is for emergency purpose. i will use it in Emergency.... For an Emergency u should have an Emergency Fund and not a Credit Card..... v will come to it later..... Replace your credit card with the debit card first. don't take any other loans. if buying a car is your necessity than also don't take loans but instead buy a 2-5 years old second hand car... but in no way.... borrow the new money.....!!!!!

2. Build an Emergency Fund before doing Investment -

After paying all of your debt.... the second step is to build an Emergency Fund. Emergency fund MUST have Minimun 3 to 6 months of your monthly expense. so in case of your disability or Hospitalisation until you claim your medical insurance policy.... your family's day to day expense meet... if your monthly expense is Rs. 1 lac than your emergency fund must have atleast 3 to 6 lacs before u start investing..

Remember, Emergency Fund is for Emergency....... u want to arrange a drinks party for your birthday and u dont have a single rupee in your pocket..... this is not an Emergency....!!!! Understand?....

3. Invest For Long Term ( means more than 10 years ) -

Once u pay off all your debts (Step 1) and build an Emergency Fund (Step 2) than and only do this step.... Don't try to b oversmart.... Don't jump directly to this step.... otherwise what will happen?... u have to liquidate your investments in emergency to pay off your debts and for day to day expenses...

Start Investing in Well-diversified, Equity Mutual Funds with past record of atleast 5 years via SIP. Don't see market ups and downs daily. u will gain nothing except stress. Park your money here for long-term means for 10-15 years or may b even more.... Equity has given highest return over every other Asset Class in the long-run in last centuary. so it is better that u invest your money in equity funds if u don't need it for atleast next 5 years.....

if u have invested Rs. 2 lac Lump-sum in equity before 20 years than in last 20 years Indian stock market has given more than 20% compounded annual return. so today its value was more than Rs. 75 Lacs. this is the power of Equity and power of compounding.... so Invest for long term...

A complete Analysis of Recession

 
Conversation between me and my friend Last week,

My Friend : " Hey, Baskar... What do u think about US Economic Slowdown?... Is it a Recession?.."
Me: " Well, yes this is clearly a recession. Fed Govt. will declare recession soon. But y r u asking so?.."

Friend: "Well... i just wanted to know that shold i exit from my current investments? bcoz my stock broker says Market is going to b very volatile for next year."
Me: " Well... it depends on your Goals. do u want money now?... r u near your goal?..."

Friend: " well... no... i don't have any goal. i don't understand what u want to say?"
ME: " well... if u don't have any goal or Time horizon than y do u invest in equities?"

Friend: "bcoz my broker says that equities give u high return. but now i m confused and panic bcoz of this recession in the USA that is affecting Asian markets..."
ME: "well... u have invested in good equity diversified mutual funds having a past record of minimum 5 years via SIP. so i don't think u should worry....."

Friend: " well...these r the advises during bull market.... what about recession?....what r the principles of Wealth building in recession?"
ME: " Ohh My God.... so u think that this is recession so principles of Wealth building will b un-effective?.... and now u want new principals of Wealth Building only bcoz this is a Recession..?"

Friend : "Yes"....

This is the problem with so many people... their stock brokers, relatives, friends and colleagues say them that this is a Recession so don't invest anywhere now, bcoz the prizes of the property will go down. the stock market will crash. the value of your investment will b down... so don't invest during the period of recession....

welll.....welllll....wellll......These r the rumors, Myths, Hype and Layman's talk..... this is not the advise or any scientifically proven fact that don't invest during recession.....

So What is Recession?...

see the graph.... well... according to graph Recession is a normal thing for any Business Cycle....
Whaaaaatttttt???????..........R U Kidding?........Recession is normal?...???... - U will ask...
Yes.... Recession is a Part of Normal Business Cycle..... See the graph again.....

what actually it is?.... well recession occurs " WHEN FOR 2 CONSECUTIVE QUARTERS GDP OF ANY COUNTRY GOES NEGATIVE"
GDP - means Gross Domestic Product (briefly speaking indicator of a financial health of country)

in every healthy business cycle recession comes every 20-30 years. A recession generally lasts for 6 to 18 months. Interest rates usually fall in recessionary times to stimulate the economy by offering cheap rates at which to borrow money. average recession lasts for 11 month.. The largest recession was THE GREAT DEPRESSION - 1929 in USA lasted for 43 months.

see the graph again.... TROUGH is The stage of the economy's business cycle that marks the end of a period of declining business activity and the transition to expansion.
The 5 stages of the business cycle r ,

1) Growth (Expansion)
2)Peak
3)Recession (Contraction)
4)Trough
5)Recovery

At one time, business cycles were thought to be extremely regular, with predictable durations, but today they are widely believed to be irregular, varying in frequency, magnitude and duration.

again see the graph.... once recession and trough is over than during recovery phase first the graph will achieve previous peak and after that the previous peak is broken.... Understand?...
so after recession, the new growth will breal the previous peak......

So u will ask now.... we r not Economists or an Economic philosopher like u.....
so what is the need to know all these things to normal people?.....

MORAL -

1) Recession is a normal thing for a Business Cycle.... so its the Opportunity to buy Assets at low prize. its not Time to Exit but Its a Time to Enter at the lowest level.... u r so lucky that u have an Opportunity to invest in recession.. it means that there is a discount in the market and 100 Rs. product is selling at Rs. 50 only.

2) Principles of Wealth Building r the same and unchanged for the Recession.

3) If your Real Estate Broker says u that don't buy in Real Estate right now bcoz of Recession.... Don't listen to him.... this is an Opportunity to buy a cheap property.... and remember these types of opportunities come every 25-30 years or may b only once in a life.... so recession is not a something to beware about but its an Opportunity...

4) If your stock broker says that don't buy stocks bcoz market is volatile.... don't listen to him... just buy stocks of fundamentally strong companies as much as possible.. Its a discount in the market. Don't Discontinue your SIP of Equity Mutual Funds Instead Increase SIP amount if possible.... Its a SALE in the MArket that very few people get in their whole life.....

5) Don't listen to anyone.... just listen to your Brain.... Just think that if the company is really doing a genuine business and its stock is selling at discounted price than company's real valuation than i Must buy it......

Don't Beware of Recession.... BE Aggressive.... its nothing but a SALE in the Economy.... Buy items as much as possible at discounted price..... it is quiet possible that u don't get another discount (Recession) in your whole Life....!!!!!!!"

Easy way to become Billionaire

Its Really Easy and Quick to be Rich and Ultra-Rich in Information Age...

Founders of,

1) Microsoft.com

2) Amazon.com

3) Google.com

4) Facebook.com

5) Buy.com

6) E-Bay.com

and many more internet companies become billionaires in their early 30s.

Founder of Facebookf, Mark Zuckerberg becomes youngest, Self-made billionaire ever at the age of 23 years only....with Net Worth of US $ 1.5 Billion.

All bcoz of "Information Age".

Information Age started since late 1990.
Today is year 2008. In 18 years Information Age has changed the world.

I will explain u y its really easy to be rich in information Age...

Explanation - Y its easy to be Rich and Ultra-rich in information Age?...

See...actually before 1990, it was Industrial Age.

So u require 3 things to become succesful in Industrial age.(means before 1990)

1) Large Investment

2) Huge Infrastructure

3) Large Man Power

what was the draw back of Industrial Age?.....

Well... see to have all the 3 above thing was a difficult task.
Suppose u want to sell something than u need,

1) Huge Shopping mall

2) Huge Investment

3) Huge Manpower to maintain that infrastructure.

But after 1990. Information age comes,
so what happens?

u can SELL anything online.

Lets take an Example of "Amazon.com" -

What is Amazon.com?....Well...its an online shopping mall.

What can u buy from this store?...
Well....Anything..... books, jewellery, shoes, gadgets, PCs, laptops, mobiles and more and more and more.....

From where can u buy these things?....
Well....from Anywhere in the world.
u can order anything from this online store ...No matter wherever u r in the world. u can home deliver anything.

What is the Advantage of "Amazon.com"?

1) No Large Investments Required....bcoz this is an online store so v don't have to publish so many items.

2) No Large Infrastructure required. bcoz its an online store. so no need to invest in real estate and No need to open Franchisees. All u have to do is open a website and launch it....Thats it.....

3) Minimal Manpower is required to run and maintain the Infrastructure (Website) unlike Industrial Age. 
Amazon.com can be operated from a small room with few Computer Experts only. No need to higher expensive and high skilled sales and marketing executives. bcoz everything is online.

4) Customers can buy items from everywhere in the World.
Y?... bcoz the store is Online. so what happens?.... it doesn't require any franchisee or chain of shopping malls on different geographical locations.

5) Largest Customer Base - 
Online Business has the Largest customer base than Industrial age Business....

Y so?.... bcoz...... in online business.... Target Customer Group is from "World

While in Industrial age Businesses... Target Customers r from Local Geographical area only....


Industrial Age Businesses has so many limitations.

The main Limitation is "Limited Customers" 

While Information Age has "Infinitely High Customers" bcoz anyone from the World can Access that website.

Lets take the Example of this Blog....

This is "An Online University" for "Financial Literacy"....

if it was Industrial Age than i need Investment, Infrastructure and Manpower to open an University like this .
plus afterall doing all these my Customers will be limited to a particular Geograpraphical Area where i live....

But Fortunately, This is an "Information Age".
So what happens?....

I m from India. so if a person from California, London or Tokyo want to take True Education than he can take this Education Online without coming to My Geographical Location.

Plus The Advantage of Information Age is that, 

- I can accomodate as many students as possible in to my University...bcoz its Online....

- People who r seriously interested in Wealth Building Can learn from anywhere from the world. They just have to go woth Internet and That's it...they can access my Online University......

- Customer Base is high so i can generate CASHFLOW from my Online University by Displaying Google Adsense on its every page.

- People can come to my Online University anytime when they r free. No need to compromise with other things to take Education from My University....

- In future, i can offer Online Courses on "Financial Literacy" also and SELL it to people around the world. and for that i don't need huge infrastructure or man power like Physical Universities.....


So This is all about Information Age....
In Next Generation......The Day will come when Students don't need to go to Physical Universities.... Everything will be Online.......

Students can take Govt. Authorised Online Degrees......

So "Creat your own Online Business and Get Rich Quick"......!!!!! 

Buy a 2nd Hand Car

Do u love Cars?
i also love Car.....

we all love expensive Cars.

Here r some True Facts about Car.

Fact - 1) Car is an Ultra-fast depreciating item among every otherm liability of world.

Fact - 2) A newly buy Car will loose over 60% of its value within first 4 years.

Fact - 3) True Rich people mostly buy a 2nd hand car.... u believe it or not but this is true....they buy just 2 year old car.... so that someone else has taken a loss of depreciation.

Fact - 4)True Rich people always buy a Car with Value of not more than 1 % of their total wealth.
say for example,
if their Net worth is Rs. 1 Crore than 1 % of it is Rs. 1 Lac (1,00,000).
its impossible to buy a new car out of Rs. 1 Lac only. so what they will do?... they will buy 3-5 year old 2nd hand car worth of Rs. 80-90 thousands.

if their Net Worth is Rs. 10 Crore than 1 % of Rs. 10 Crore is Rs. 10 Lacs. so they will buy a car Maximum of Rs. 10 Lacs ....and so on......

True Rich never buy a Car more than 1 % of their Total Net Worth....

What middle class will do?....

Suppose a Typical Middle Class have Net Worth of Rs. 20 Lacs..... what he/she will do? he/she will buy a Car Worth Rs. 15-20 Lacs on Downpayment.
And will pau its payments for years.....

What ideally he/she has to do? id his/her Net Worth is Rs. 20 Lacs?.....

Answer -

- 1% of Rs. 20 Lacs is Rs. 20,000 (20K).

- so either buy 2 year old Two wheeler out of it

- or wait to increase Net Worth

- Or if buying a Car is a Necessity than buy 8-10 years old Car worth Rs. 20,000.

- He/she Must have to wait untile their Net Worth increases before they buy expensive Car.

But in Any Circumstances Don't Buy a Car worth more than 1% of your Total Net Worth.
This is Very Important......

Either u buy a 2nd Hand Car or Wait until your Net-Worth increases so much that its 1% is worth of 20,30,50 Lacs.....

Than and only Buy Expensive Cars..... 

How to become rich quickly

 


Well.... This Article is not about building a Wealth. But this article is about Creating a Wealth or you can say its about generating a new wealth.

Creating a Wealth means Generating a new Wealth like Government prints its own money.
So u will ask than how can this possible?
How one can Create Wealth?...

Well... The Answer is "Taking Your Company Public"
yes...This is true.... Taking a Company public means creating a new wealth.
How?.... Here is the Logic behind it.......


Suppose today you have registered a new Company having a Capital of Rs. 1,00,000 (1 Lac) divided into 10,000 Shares of Rs. 10/- Face Value Each.

Now u start doing a business by this amount and after 10-15 years the Valueation of the company becomes Rs.10 Crore right?
SO now company's net worth is Rs. 10 Crore so now u can have 1 Crore shares of Rs.10/- face value each right?.... (10 Crores divided by 10 = 1 Crore Equity Capital)

so now company's Equity Capital is 1 Crore Shares of FaceValue Rs. 10/-

So 1,00,00,000 Shares multiplied by Rs.10/- = Rs. 10,00,00,000 (10 Croes).

Now your Company is eligible for going a public according to SEBI's Guidelines.

Now your Company's Share Capital is 1 Crore shares of Face Value of Rs.10/- each.
Now you Sell your 10% Company to public by IPO(Initil Public Offering / Public Issue ) route at a price of Rs.100 per share (Face Value of 1 share is Rs.10/-)

Now 10% of 1 Crore shares is 10 Lac shares (10,00,000). so u have sold 10 Lac (or 10% of the Company) to the public at a Share prize of Rs. 100/- per share. So you have raised Rs. 10 Crore (10 Lacs multiplied by Rs.100/- = Rs. 10 Crore) from the public for your Company by selling 10 lac shares (or 10% ownership of the Company).

Now 1 share having a face value of Rs. 10/- is trading at Rs.100/- on the Stock Exchange.

So now what will be the Worth of your Company?

Well, see... The Company has total 1 Crore shares having face value of Rs.10/- each and u have sold 10% of the total shares (10 Lac Shares) to the public at Rs. 100/- per share.

So if we count the value of your company by taking in to account Rs.100/- per share than the Net Worth of the company will be 1 Crore Shares multiplied by Rs.100/- = Rs. 100 Crores.

So Net Worth of the company after going public is now Rs. 100 Crore

Which was only Rs. 10 Crore before going to public.(before going to public 1 share was Rs.10/- only so 1 Crore Shares multiplied by Rs.10/- = Rs. 10 Crores only)

This new Net Worth of Company is known as Market Capitalisation
So after going to Public the Market Capitalisation of The Company becomes Rs. 100 Crore.

Out of which 90% company ownership is with you having net worth of Rs. 90 Crores (On Paper) and 10% ownership is with public having net worth of Rs.10 Crores (On Paper)

So now think in this way,...

New 100 Crore Rupees are added in to the economy after your company going to public right? 
Now Government has not printed these new 100 Crore rupees.
These are just on paper valuations that counted as Net Worth....

So what actually is it?

Well.... This 100 Crore Rupees are newly created into the Economy.

This is known as Actual Creation of New Wealth....

Earning a this much amount of Wealth is not possible. The only way is you have to create it.

Now See, Forbes Magazine,

All the Top 1000 Billionaires of the world have actually Created Wealth.
Observe this phenomena into Forbes Magazine.
All of them have created a business and taken it to the publice and now their own stake in their own Corporation/Company is worth of billions of dollars.

All the World's Richest people are not Wealth Builders but Actually they r Wealth Creators.

The Value of Indian Economy is US $ 1 Trillion. most of the wealth is created by this way. They have just total the valuations of the all the listed companies of the stock market.

The Greatet US Economy of the World is around US $ 12 Trillion. All of this Wealth is Created and counted by this method........ 

2012 - Market Forecast

It is quite amazing but true that the year 2011 has been the second worst year in the history of Indian markets with a decline of 25% in the Nifty and 35% in the Mid cap indices(since the 1980s at least). No prizes for guessing which was the worst year i.e. 2008. In USD terms the performance was even more disastrous with losses of 44% given the 19% decline in the value of the INR. The year began with cautious optimism after the fall that the markets had seen post peaking off in November 2010. However a sequence of events, foreseeable and unforeseeable made this a disastrous year for equity investors. A lot will be written on the year ahead and I have touched on some subjects in my previous articles a few weeks back. However sentimentally one thing is very apparent from all the strategy reports that I read today, as well as the commentary in various media.

1. 2012 will be a very tough year for equity investors and it is unlikely that there will be significant returns during this year.
2. India will continue to underperform given concerns on inflation, high interest rates and poor governance.

I have infact not read more pessimistic commentary on India for a very long time as we see today. The same brokerages/research houses that were predicting Sensex at 23-24000 by the end of 2011 a year back are now forecasting markets at 12000 (at the lower range) to 18000 (at the median of the upper range). There are some who, albeit apologetically are predicting a move above 20,000 levels this year. However this is being done with a lot of caveats. The funniest are those reports where there are bull case, base case and bear case views where the difference between the bear case and the bull case is over 50-60%.

My take on the markets in 2012 is that we will see the Nifty/Sensex return anywhere between 15-25% and the broader markets by 25-35%. I believe that sentimentally the markets have bottomed out and the bottoming out, value wise will happen over the next few days or weeks. This should lead to a durable bottom being formed for the markets. I have touched on the logic for the same to a large extent in my article on the 5^th of December, an updated version of which I will present in brief and then more on the domestic situation and the markets.

The Euro zone Crisis – The Euro zone crisis and the debt issues related toGreece, Italy and Spain have been the main contributory factors to the nervousness in the global equity markets over the last several months. The crisis has got accented by a lack of faith in the political system and its ability to resolve the issues. This issue has been discussed a lot so I will not go into the details of all of this, however I do have a contrarian view on the future direction of news flow from Euro zone. We now have new governments in Italy, Spain and Greece i.e. all the troubled countries. Two of them are lead by technocrats and one by the right wing party. As such, in my view the worst of the news flow from Europe is now in and we might not get incremental negative news flow over the next 4-5 weeks. This is likely to be similar to the negativity due to news out of the US around 3-4 months back, which suddenly died out as the economic data started to improve. The entry of the IMF in the entire discussion combined with greater urgency to resolve the issues is also encouraging.  Overall I do not expect Europe to create any deep cuts in the markets going forward.  This was the view that I had put out a few weeks back and seems to have played out well. It seems clear now that although Euro zone will go through a cycle of deleveraging, slow growth, intermittent issues related to fiscal issues of troubled countries etc, the probability of a Euro zone breakup seems remote at this stage. Intermittent occasions of bond issuance of Italy and Spain will create volatility on those days. Infact if investors were so concerned on the Euro it would not have fallen by just 2-3% against the USD in the year 2011. As I wrote a couple of weeks back “Europe has clearly avoided its Lehman Moment”

US News flow – The news flow from the US has been mixed. Over the last few weeks there seemed to be clear indications of an improvement in economic activity. The Fiscal issues will keep on creating volatility periodically, however low borrowing costs and an improving economy could lead to a Fiscal surprise next year.Overall economic activity seems to be improving, albeit at a slow pace in the US and there does not seem to be the likelihood of a double dip recession at this stage. Most corporates in the US are cash rich and market valuations are at just around 11X P/E for next year. Earning expectations for the year 2012 are pretty low with earnings growth forecast in the range of 0-5%. As such US news flow will create volatility but it does not look that it can create a fresh down move at this stage.

Infact US has not only created conditions for a down move, but it has actually supported global markets due to continuously improving economic data, especially related to employment numbers. Technically too the movement of the key indices above 200DMA’s and the breakdown of the similarity of the move from 2008 indicates further gains for US equities. The breakdown of VIX below 23-24 levels also indicates reduced risk aversion and greater confidence. Typically such breakdowns are followed by multiweek up moves.

GOLD – As I have written in detail in my previous article I expect 2012 to be a difficult year for gold. I expect a 20-25% correction before prices come to a level where actual demand rather than pure investment demand can support prices. Since I have written in detail earlier I will not repeat, however the most fancied asset class will have a tough time holding on.

China – China is one aspect about which I have not written earlier mainly due to the fact that it is difficult to analyze it. However pessimism on China seems to be at its peak with the Chinese markets trading at valuations that are at multiyear lows. The expectations of some, of a hard landing in China do not seem to be playing out. The move from investment to consumption led growth seems to be moving slowly. By letting the Yuan appreciate in light of pressure on exports seems to have played out well. Inflation has also been controlled well by demand & supply led measures as well as administrative dictates (which can only work in that country and not in countries like India). The moderation in economic growth has been happening at a steady pace. However the key challenge will be holding up growth in light of falling export demand, controlling excessive investments in unproductive areas and the biggest factor will be the asset quality of Chinese banks and how they will hold up in light of increasingly challenging environment and pressure on profitability of Chinese corporates. The corporate sector in China is likely to be hit on two fronts i.e. higher wage costs due to rapidly increasing salaries as well as the strong up move of the Yuan against most other competing currencies. Just as an example, over the last one year the Indian rupee is down 20% against the USD and the Yuan is up nearly 6%. The way things look to me it seems the base case will be a soft landing rather than a hard landing for Chinain the near term. The two big surpluses that China has i.e. Current Account & Fiscal are vastly undervalued by the markets in my view. Officially China seems to be aiming at an 8% growth next year which is extremely strong in the current environment. The challenge is health of the banking system and how much it needs to be capitalized in order to support this growth as well as the state of health of the Provincial Governments about which there is very less transparency.

India domestic factors & outlook

The Indian markets had to make do with not only global issues but also several domestic issues in the year 2011 making it one of the most turbulent years in recent memory. Although 2008 was challenging for India, it was generally perceived at that stage that the factors are largely external and as such should not have a lasting impact on the performance of the economy. We had also started giving lesser importance to the government as the economy became more and more open. However 2011 was a year which showed the importance of governance in promoting and sustaining economic growth as well as macroeconomic stability. The year 2011 was a year of high inflation, high interest rates, lack of policy making as well as the most challenging year for the Indian rupee since 1992 (ex of 2008).

The Rupee - The fall in the rupee is being attributed to high current account and fiscal deficits, which is true to some extent. However it is more due to a lack of confidence in the economy in the near term as well as cash flow mismatches on exports and imports. This aspect is extremely important to understand. Given the way the rupee fell and the continuous statements by policy makers that we are helpless in managing the rupee all importers have run to hedge their positions and no exporter is hedging. This creates a very huge mismatch in the short run. Let me try to explain. India has exports of broadly USD 20 bn a year and imports of USD 30 bn. Now this is a gap of USD 10 bn which is bridged by invisible flows, capital receipts, foreign borrowings, FDI etc etc. Now in a situation where everyone believes that the rupee can only fall all importers want to hedge, however no exporter wants to do the same. This creates a huge mismatch in the short run till the export proceeds flow in after a period of 90-120 days. This also creates a tendency to delay export inflows in order to realize a better rupee value. This actually makes me believe that the first quarter of 2012 can be a good period for the INR as the panic fall period now seems to be over and export realizations will start to come in. Other measures like reduction in holding period of Government and Infrastructure bonds as well as higher interest rates on NRI deposits should boost inflows. My base case view will be for a 3-4 % rupee appreciation in the first quarter of 2012 unless and until there are huge capital outflows.

Policy making – Initially we had a period in late 2010 and early 2011 when a large number of projects got held up on environmental issues. Later on after the 2G issue we have seen a significant decline in project approvals, takeoffs etc. This has got exacerbated by the continuous increase in policy rates by the RBI which has made lot of projects unviable. Reform measures have also got stalled. I believe that we are now at the absolute nadir of the decision making cycle and things can only improve from here on. I expect this to happen post election in February after which things would be much better.

Inflation would have come off much more sharply had it not been for the decline in the rupee. However the absolute correction in commodities and food prices combines with the strong base effect will take inflation down to nearly 5% by March 2012. In case the rupee also appreciates as I expect it too the overall scenario could be much better in 2012. As such we should have improving liquidity and much lower interest rates as we go through 2012 and this will provide a tailwind for economic activity to pick up.

Markets

Taking most things into account and also taking into account the market psychology as well as valuations I am of the view that the current situation of the markets is akin to early 2009 where one could see only negativity and that was the time that markets bottomed. Valuations, especially of the broader markets are today nearing historic lows and the overall market is also trading at 12X 2013E earnings which is very attractive. My view of the markets over the next one year is that of a worst case of 14500-14800 for the Sensex (at 12X P/E) and 26000 as the best case (on a 20x P/E.) 

The markets are today trading at a Mcap/GDP of 50%; in the beginning of 2008 this had gone up to as high as 160%. The Profits to GDP ration of corporates goes through phases of compression and expansion. Right now both gross margins as well as net margins are suppressed due to the huge input cost pressure that we have seen over the last 18 months as well as high interest costs. This is likely to reverse over the next two years. Eventually the Market capitalization will move towards the 100% level to GDP, if not more. This will provide strong returns over the next 3-4 years.

Markets seem to have taken most negatives in their stride as of now. The risk reward is strongly in favor of investing into equities at this stage. As inflation falls and interest rates come down there will be a revival in the economy and growth prospects will start improving. The timing of the bottom formation is difficult to predict, however it will happen in weeks not months.

Markets should be able to return 15-25% at the middle of the pessimistic/optimistic range over the next one year. 

BEST WISHES TO EVERYONE AND HOPING FOR A GREAT 2012