Savers went kaput in 2011. Even those who got good increments at the start of the year were hurt quite badly by the double whammy — rising inflation and interest rates.
Reserve Bank of India governor Duvurri Subbarao was left with little option to counter that, so he raised interest rates. And, as the months went into double digits, so did interest costs. Today, a floating rate home loan would cost 10-11 per cent. Existing borrowers have it worse. Industry players say the interest cost on a floating rate home loan has risen 25-35 per cent. There went even the most efficient person's increment.
Forget increments, investments gave no solace either. If you had invested Rs 100 at the start of the year in the Sensex, it would be worth Rs 75 on December 30 (the last day of trading) – 25 per cent down. Only debt instruments gave positive returns, but if one looks at inflation-adjusted returns, even they barely made it (most times they didn’t).
Things won’t be very different this year. Rather it could be worse in some ways. Last year, there were increments for most before things started worsening. This year, most of us know that increments would be hard to come by. In fact, there is a likelihood of salary cuts, if not job losses in some sectors.
The financial sector, as usual, is already seeing the impact of a global slowdown. Some jobs have already been cut by global bigwigs like Nomura, Barclays and Morgan Stanley as part their global cost-control programmes. Others like HSBC are expected to start the drill soon.
What could help are lower inflation numbers and interest rates. Though interest rates may not fall dramatically in the immediate future, at least some downward revision is expected. So there could possibly be some reduction in home/auto loan outgo.
But investments will continue to hurt. If things get really bad, the Sensex could fall up to 11,000-13,500, according to a recent Business Standard brokerage poll. Even the upside for the calendar year has been capped at 18,000-19,000 – a rise of 20 per cent from today’s closing. But one has to be brave to invest now to earn those returns or more. Debt, again, could give some solace.
So without increments and return on investments, it is certain that one has to get ready for some belt-tightening. All those big buys will need to well- planned. Unwanted and impulsive expenses have to go out of the window. The good part: the negative mood has been there for some time, so, everyone expects things to be bad. The sad part: 2012 has come too soon, most of us were still recovering from 2008.