2009, year of opportunities - Editorial

A tumultuous year is finally over. The financial crisis has been contained, for the most part. But it has given way to deep concerns about the 

global real economy, and corporate profits and bankruptcies. Despite the gloom, here is why we should look forward to 2009. 

The unprecedented and unconventional measures taken by central banks together with the fiscal stimulus provided by several nations seem to have averted a catastrophe, and at some time in the second half of 2009 or early 2010 the global economy should begin to look up. Individual incomes are unlikely to go up in the new year for a vast majority. 

But then, because of declining inflation and an outright absolute drop in the prices of many goods, including consumer goods, existing incomes should count for more and that opens a host of opportunities, particularly for investments. On nearly all valuation measures — price-earnings ratio, book value, to name a few — shares present a once-in-a-lifetime buy opportunity. 

Even for the risk-averse, this is a good time to lock into high yield fixed income investments — even as inflation is expected to fall to about 4% soon, bank deposits are yielding over 5% real return against the 2% norm. And for those who have been priced out of the real assets markets, housing for one, plunging prices should bring cheer. Falling interest rates should double the joy. 

A sharp drop in corporate incomes and profits across the world is almost a foregone conclusion, significant bankruptcies are also likely. But for the corporates that have healthy debt-free balance sheets, attractive acquisitions abound. The cash-rich IT companies have already taken the lead. 

Or as rivals fall into difficult periods, this may be a good time to grab market share through advertising and marketing initiatives. Investments that looked unviable a few months ago suddenly look feasible, as the cost of resources has fallen dramatically. The cost of commodities, land, human resource, transport and credit, when available, has come down sharply. 

And demand destruction has happened, but rural consumption is growing. So, while the conventional wisdom says conserve cash, cut costs, and go slow on investments, a well-calibrated conservative contrarian streak at this stage is likely to pay rich dividends in the future.