Wednesday, December 7, 2011


A year marked by dwindling hope and sense of resignation
2011 began with the hope of “muddle through” and is ending with a resignation to
“it’s so bad, it’s almost good”.

The year though will be remembered as a watershed year for many reasons:
The wide spread social unrest that will likely leave some indelible marks on
the global canvass. Many countries, e.g., Tunisia, Egypt, Libya, Syria,
Yemen, etc. witnessed strong demand for a change in the extant political
structures; whereas many other in the west saw people coming to street
seeking significant structural changes in the functioning of financial markets.
India also witnessed a popular public moment against corruption and
accountability gap.
The public debt crisis in EU assumed threatening proportions that could
impact the global fiscal policy framework in the decades to come.
A major nuclear accident in Japan triggered a debate on desirability of
nuclear energy in the global energy mix.
Enduring Japanese earthquake, US credit rating downgrade, a full blown
European sovereign debt crisis, and unrest in MENA, the asset class returns
in 2011 have been surprisingly resilient. Bond returns up 5%, commodities
flat, and global equities have lost only 6%.
Underperformance of BRIC markets. One of the most notable features of
global equities in 2011 was stark underperformance of BRIC, especially India
and China, still the two fastest growing economies.
Emerging markets underperformed the developed markets and US.
The big story of 2011 was the de-rating of equity multiples, making equity
valuations cheap as compared to the historical averages.

Indian equities: down and out of favor
Led by deteriorating macro, slipping growth and consequent earnings downgrade
and negative publicity generated due to frequent scams and revelation of
accountability gaps in many instances, Indian equities find place amongst the
worst performers globally.

Domestic consumption largely saved the day for the economy, as the investment
cycle descended sharply. The trend was reflected in the sector performance
where consumers substantially outperformed.

To read the full report: INVESTMENT STRATEGY