Opportunity for retail investors?

After a heady 2014, returns will be lower. But real returns is quite likely to be positive due to low CPI

Retail investors have a good reason to be scared with the Bombay Stock Exchange Sensitive Index, or Sensex’s sharp fall on Tuesday. This seventh worst single-day fall due to continuing drop in the crude oil prices is reminiscent of 2008 when there were five single-day drops of over Rs 850 points in a single year.

So, is it time to get worried? Most believe that the global hiccups are temporary and investors should not worry. Prabhat Awasthi, head of equities, Nomura Holdings believes that the fall in oil prices cannot be bad news for India from any perspective because it will lead to a lot of savings for both government and consumers. “This, coupled with positive government action, will mean that things will continue to be robust,” he says, adding that there could be a short period of turmoil but that would be temporary.

Investment advisor Gul Tekchandani believes that though there are serious concerns about the global economy, things would settle down within a month or so and the problems for markets won’t get deeprooted. “With Europe and majority of Asian countries like China going through a deflationary phase, only a few countries grow. This includes India,” adds Tekchandani.

The main relief for investors comes from the sharp fall in the crude oil prices. According to market experts, the savings from crude oil will lead to falling in inflation and lead to over $10 billion savings for consumers. The government is expected to save another $20 billion. “This will allow consumers to save/spend/invest more. Even the government will have more money in its hands,” says a head of a brokerage house.

Importantly, consumer price index numbers have entered into a lower trajectory. In November, the consumer price index hit 4.2 per cent and the year-to-date average in 2013 was 7.4 per cent. In the coming months, the consumer price index numbers are expected to fall further. In comparison, the average consumer price index in 2008 was at 8.32 per cent which went up to 10.83 per cent and 12.11 per cent in 2010 and 2011. Clearly, we are on a stronger wicket this time.

Experts believe that the global problem may also delay the US Federal’s rate hike cycle. And even if it happens, it will at a rate which will allow stock markets to discount them.

In such circumstances, for existing investors it is time to stay put. “It could be also be a good situation where investors can buy on dips,” adds Awasthi. Yes, the nominal returns may not be so high and action may shift specific stocks and sectors.

But most expect index returns to be in the range of 15-20 per cent. But if consumer inflation rate continues to be low, real returns will be quite decent.