Year of the value investor – 2009

As the world economy heals though 2009, its time to ask what Indians should look forward to in the new year 2009. And the answer surprisingly in these days of sourced sentiments is plenty.

First, 2009 will become the year when the consumer, battered by rising prices in the last four years, once again becomes king. The world over, prices of products from steel to clothes to wheat falling: your domestic budget is soon going to look a whole lot better.

The real headline maker on the price plummet story is energy. Crude oil is down over 70% from its peak of $147 a barrel a few months ago to less than $40 now. It could fall by some more dollars. Remember, after the Asian crisis and Russia’s default in 1997-98, a barrel of crude was going for $ 10. India imports over 70% of its oil needs. So a low price is a double bonus.

Just when is seemed that doom and despair would become permanent features of the global economy, a 46 year old man is waving a roadmap that might hold the key to a new dawn, a new economic revival. His name is Barack Obama and his rejuvenation formula has only word in it – green! A decade ago, it was the internet that changed the way people communicated and worked giving birth to a whole new generation of entrepreneurs and completely diverse employment opportunities. With major economies of the world sinking into a recession and India witnessing a slowdown, the betting is that the green sector might just turn out to be the savior, both in terms of creating employment opportunities and harnessing entrepreneurial skills.

Consumers get cheaper oil and plastics and our overall import bill comes down. That should ease some worries about an export slowdown. For all aspiring homeowners who watched helplessly as prices soared way beyond their reach in the past five years, 2009 could be when they make their big move. Air is whooshing out of the property bubble, home process are falling and the most inflated markets – Mumbai, Delhi and its outskirts, and Bangalore will see the biggest falls.

Banks have cut interest rates, and more cuts are likely. But today, most banks have lost the nerve to lend to people like us. Early next year, bankers will recover their confidence, and there will be plenty of people queuing up for mortgages.

Second, 2009 could also be the breakout year for 70% of people in village India. Reforms driven by the UPA regime have boosted rural growth to 3.5% each year for the last four years; the average for the previous five years was 2%. This near doubling of growth has had a dramatic impact. At 56 million, India has more families earning over $2,000 each year than urban India, at 51 million.

Not so for folks at companies like Jain Irrigation, Hindustan Unilever, Marico and Bharti, who’ve seen rural sales shoot up. From April to October, the sales growth of lotions, creams, candies, toothpaste and hair oil in Bharati was at least double that of urban market. In villages Candy sales have grown over six times as fast as those in cities. If the government continues pushing infrastructure and farm reforms, growth skeptics might be surprised by the numbers that come next year.

Third, if you are holding on to extra cash, 2009 might be the year of the value investor. By the second quarter of next fiscal, most earnings shockers would be out in the open. Markets react faster, so stocks are likely to bottom out, say by the end of the first quarter. After that, cautious stock picker sifting carefully through numbers could start building the foundations of the portfolio that defines the next bull run.