Choice environment is more challenging

(T P Raman is Managing Director, Sundaram BNP Paribas Asset Management. The opinions expressed are his own)

By T P Raman

The investing environment now appears more difficult in terms of choices than was the case six months ago. Equities have had a tearing on the back of liquidity in emerging markets and on economic parameters not declining in the manner they did in Q 4 of 2008 and Q 1 of 2009. Valuations are no longer attractive and are in fair value territory.

Emerging markets as an asset class trade at price earnings multiples that are similar to developed markets. In the sense that the growth prospects are completely different, a premium could emerge and be sustained.

Within this space, India could continue to command an incremental premium aided by superior growth prospects, a more diversified economy and multiple domestic triggers.

Switch to fixed-income, it appears likely that the tale of declining interest rates is now over, at least in India even though developed country rates could stay low. Rates in India will not go up in a hurry but they will start to edge north over the next 12 months with the baby steps probably happening this quarter.

This means the shorter end of the market is where the opportunities will be, as has been the case for much of 2009.

The optimal way to handle the question of deploying your savings will be to focus on asset allocation. Take a hard look at whether you are equipped to handle the risks in equity. Only if the answer is yes, should you contemplate this asset class.