Recession, slowdown or an opportunity?

The current slowdown offers a huge opportunity to investors who feel they missed the bus during the stock market boom. The slowdown is your opportunity to catch the lows and reap benefits when the markets turnaround.

2008 will be remembered as the year when the R-word became a reality in the developed world. In fact, the current recession is being compared to the Great Depression of 1929, though the world may still be refraining from using the word “depression”.

The developing world (or rather, India and China) has been impacted by the recession – but in a different way. In these economies, growth has slowed down. Therefore, it’s more appropriate to use the term slowdown, in the Indian context. Our economy is still growing!

We have entered 2009 with all sectors reeling under the slowdown (thanks primarily to the US and other developed nations). The developed world, on the other hand, continues to grapple with the consequences of excessive greed and lack of checks and balances, as also commonsense. It will be a while before we are able to pick ourselves and move on, hopefully learning from mistakes (or rather, blunders).

Well, so much for looking at it negatively. I choose to look at the slowdown in a more optimistic and pragmatic manner. Looking at it from a pure financial planning point of view, I see this as an OPPORTUNITY!

An opportunity to learn, an opportunity to explore other products, an opportunity to make investments at much lower levels (as compared to those that were made in 2006 and 2007).

For investments that have a horizon of 5 to 10 years or more, there couldn’t be a more opportune time than TODAY. For those who continue to think that they missed out on the bull-run or joined in late, this is one opportunity they should not miss. Just when you thought you had missed the bus, the bus comes back. It has stopped for you so that you can get on. And believe me, it will certainly take you to where you want to be – your personal financial goal – provided you show the right patience and are guided by the right financial planner.

A slowdown is an opportunity to learn. The first lesson is - don’t put all your eggs in one basket – an oft-spoken adage that is more preached than practiced. The slowdown teaches you how important it is to have a proper financial plan in place and work according to it, rather invest in a haphazard manner (based mostly on what others have to say). In short, common sense and understanding of the basics is more important that a glossy presentation and flashy returns!

Till 2007 the only product everyone noticed was equity and equity-related instruments. There was no ‘apparent’ need of a financial planner as no matter where you were invested, humongous returns of 30% plus were almost ‘certain’. There was so much that existed, but was swept under the carpet, thanks to the mind-boggling returns from equity. Since early 2008 a number of options have come to the fore - liquid funds, fixed maturity plans (FMPs), fixed deposits (FDs), arbitrage funds, Nifty-linked debentures, gilt funds, income funds etc.

Since September last, I have been advising slow and steady investments after doing a proper analysis of what you have, what you want and how you can achieve it. The how, when and why of each product has to be analyzed and investments have to be made in the right perspective.

I reiterate – there is no better time than today to start your financial planning with the ‘big picture’ in mind.

Recently, someone asked me: “How can you be optimistic when markets keep falling every day?” I have a simple logic for this. Globally the developed nations are in a recession with zero to negative GDP growth forecast for the next year or so. Indian businesses have also been hit by the slowdown and the high interest rates (thanks to the spurt in oil prices last year). Despite this, the GDP growth in India has been forecast at 6% in FY10. This is phenomenal compared to that of US and Europe.

In 2008-09, there was a huge outflow of money by FIIs and hedge funds to their parent companies, to prevent bankruptcies back home. Once that goal is achieved, they have to invest the monies of their clients / investors to give them reasonable returns. The only places where they will see some glimmer of hope is in developing markets, such as India and China. So money will flow back to India.

There are two other things I want to point out. One, the crisis is not over yet and two, you can never catch the bottom of the market. The latter is more a matter of luck, than skill. In short, take proper advice before you invest and if you have already started investing then ensure that this is the time to continue those investments. And if for any reason you have stopped investing, then don’t delay restarting those investments now. Don’t miss this OPPORTUNITY!