Valuenotes.com
Looking back, 2011 has been a year of turmoil, both in India and abroad. The Arab Spring, Eurozone crisis and downgrading of US’ credit rating caused volatility across global markets. At home, economic growth faced a number of hiccups as the government battled rising unrest over poor governance and corruption, while inflation, fiscal deficit and interest rates continued to cast uncertainty. GDP growth for Q2FY12 slipped to its lowest in two years.

The Index of Industrial Production (IIP) and Sensex saw their 52-week lows in December 2011, while the Rupee depreciated further against the dollar. In short, the story was drastically different from that in 2010, where growth expectations were pegged at 9 percent and stock market bulls had a field day when the Sensex crossed the wishful 20,000 mark.

As the economic and political drama unfolded over the year, the Investment Confidence Index (ICI), a barometer for measuring India’s investment sentiment, reached its lowest in the past year and half. The ICI for December 2011, which is based on a pan-India survey of retail investors, advisors and corporates, clearly reflects that confidence over the Indian economic situation is weakening across the board.

In 2010, it reached its peak levels but a year later, the confidence stood shaken. Retail investors, whose confidence remained unfazed even during the 2009 crisis, emerged as the least confident category in the December 2011 survey.

Reasons of this loss in confidence are plenty, both external and internal. A year back, around 40 percent voted for GDP growth as a positive economic indicator. But in December 2011, only 26 percent believe it is so. Indians do not expect a turnaround in the economy’s investment environment in the next six months and are apprehensive about increasing their investments and portfolios. Majority of them currently prefer to be cautious and preserve their capital rather than take risks. A number of indicators (inflation, fiscal deficit, interest rates, borrowings, bureaucracy, etc) have grown beyond the comfort zone and are affecting the financial community.

Overall confidence has also weakened because of global cues and investors (both retail and corporate) do not expect a turnaround in the global economic situation in the coming six months.

However, it may be that the Indian financial community has given up on India’s growth story a little too early. No story is complete without a twist and 2011 was that twist in India’s tale.

Some results in the beginning of 2012 have brought cheer:

- Inflation rate is moderating. Food inflation dipped by 1.04 percent in the week ending January 14, 2012.

- The manufacturing sector has strengthened. IIP in January 2012 edged up 5.9 percent over the last quarter.

- Sensex has increased by nearly 11 percent since December 2011.

- After a spate of hikes, key interest rates remained unchanged in the recent RBI credit policy.

- Rupee has become stronger and witnessed a three-month high.