That time of THE YEAR

For the last 15 months, I have staggered and struggled, and why is that? Well, it is because despite trying my hardest to find something cheerful and happy to write about in these pages, I just haven't been able to. The first 10-odd articles were written when much of the telecom industry was folding up; Corporate India was announcing massive staff rationalization plans; the Indian economy was taking a bruising and beating like never before; banks were failing like nine-pins in a bowling alley; industry after industry sector showed mounting losses; and the real estate sector was facing massive reversals, with developer after developer declaring bankruptcy, bringing construction work on already-paid-for flats to a grinding halt.

It was all dark and dismal. I hummed and hawed and did mountains of reading and research on hundreds of news and social media sites. Nope. Nada. Zilch. Naught. Nothing good was happening.

Deciding that enough was enough, I planned a visit to my home in the mountains, which would finally lead to a happy travel article, with nice pictures of lush, snowed-out hills and gushing creeks. But our rulers suddenly appeared on TV and announced a 'Janata Curfew'. Subsequently, this turned into a long and harsh lockdown, the reasons for which scared the pants right off me and 135 crore other Indians. Well, the travel option had to be notched off the list too.

PS: Come November last year, I did finally visit Manali and travelled through the swanky new Atal Rohtang Tunnel to the Spiti Valley. I came back and wrote a piece on that journey as well, but even that story was marred by the many tourists who had, within just three weeks of the opening of the tunnel, already created large mounds of plastic waste and empty beer and liquor bottles all over a till-recently virgin and pristine mountainside. These didn't make for a pretty picture.

Now, a new problem

Here I am again, living true to my tradition of sharing bad news—this time on the personal investments front. As the financial year winds down and just a few days remain for India's salaried class to make investments, either for tax-savings or capital gains, they are scratching their heads and looking up to the Gods for divine intervention. Over the last few years, and especially over the last 12 months, every single investment destination has become anathema, either failing to give any significant returns, or downright causing untold and numbing losses to today's hapless investor.

Be it bank fixed deposits, mutual funds, investments in gold, the real estate sector, recurring deposits, even the central Reserve Bank of India's (RBI) bonds issues; everything has seen a sharp downward spiral. In the case of some investment categories like mutual funds, investors have incurred massive losses.

Then, there is another teeming problem for depositors, crores of whom are today worried even about keeping their money in their bank savings account. No one has forgotten what happened exactly a year back to YES Bank, which was rocked by a financial scandal, hot on the heels of the collapse of the Punjab and Maharashtra Cooperative Bank (PMC).

Why is this happening?

Well, the Indian economy is in the midst of a never-before slowdown. Let me say it aloud, because few others are actually mouthing the words: "We are in a recession." In fact, the few analysts who are still speaking their mind insist that our economy had already entered a recessive phase even before the COVID-19 pandemic hit our shores and the resultant lockdown debilitated the already-reeling economy and Corporate sector.

A lurching Corporate sector meant job losses, which saw hordes of our educated working class sitting at home without earnings and with little clue about when jobs will return. Thus, pockets were buttoned up and purse-strings tightened as spending power took a nosedive and demand fell for all manner of goods and services. Borrowings and loan applications at banks crashed to new lows as people were reluctant to make any unnecessary purchases. Banks suffered, as small borrower numbers dwindled and large Corporates started defaulting on their huge loans of hundreds, borrowings of thousands of crores of rupees.

A circular issued last year by the RBI in the wake of the COVID-19 crisis warned that bank Non-Performing Assets (NPAs, read 'bad loans') were set to increase from already disastrous levels of 8.25 per cent to around 12.5 per cent by March 2021. India's banking system has gross assets of Rs 600 lakh crore—RBI's projected increase in NPAs of 4.25 per cent means a rise in bad loans of over Rs 20 lakh crore. And mind you, the stated deadline for this disaster is just three days from today.

Mutual Funds? Gold?

As the sage Corporate honcho or seasoned politician says from the dais during a press conference, "Good question. Very good question…" But while the question is great, there is no good answer for it.

Mutual funds? Well, till around 18 months back, yes, these were a good bet. Even in the humble debt fund category, investors could expect a safe return of around 8-9 per cent annually. Liquid funds would then net investors around 6-7 per cent per annum. Some equity-based MF schemes were even showing 5-year yields of as high as 15 per cent and more. Infrastructure funds were darlings, offerings returns upwards of 12 per cent per annum. All that has changed and these same funds now offer a pittance—2, 3 and 4 per cent, taxable on redemption, with little surety that the money would be safe, or 'touchable'.

Why 'touchable'? Well, MF firms have been increasingly resorting to a phenomenon called 'side-pocketing'. As their investment in any organization or sector crashes, they place that part of an investors' portfolio in a 'segregated' account. What does that mean? It means you cannot touch your funds till the concerned organization or sector bounces back to health. If it doesn't, your money is gone.

Let's try gold, you say? Are you sure you want to do that, considering that its price has been oscillating like a pendulum? After touching historic highs of Rs 56,000 per 10 gm a few months back, it plummeted to Rs 42,000 per 10 gm, a crash of 25 per cent. Today, it is hovering at around Rs 46,000 per 10 gm, still a hefty loss from the heady days.

Real Estate? Bonds?

Really? Once the pounding heart of every retail investor's portfolio, the real estate sector is today in tatters, driven by over-development, promoter avarice and funds diversion. A decade of promoter chutzpah and financial plundering have seen the real estate sector fall from grace, leaving millions of India's aspirational class wounded—financially, even emotionally.

Unitech. Jaypee Infra. Amrapali. BPTP. The list of real estate giants gone bankrupt or nearing this status is a long one. And in their ruin, the sector has taken down millions of middle-class investors with it, people who were either looking for their dream home or hoping to double, even triple their money in quick time. And while most of India is facing this real estate sector wipeout, it is North India, particularly Delhi NCR, which has been the worst hit. The Government has had to step in, announcing a Rs 25,000-crore rescue package for completion of stalled residential projects. However, the sheer number of such projects makes this too paltry a sum to have any significant impact or resuscitate the industry. So, real estate as an investment destination is out.

Bonds, you say, RBI or otherwise? Well, while the central bank's 'RBI Bonds' remain a near sure-shot option with around 7 per cent annual returns, it has a lock-in period of many years and few people today have the gumption or financial ability to stay invested for 6-7 years. Bonds of other institutions and banks are suspect, if only because their very own survival is too. Thus, even bonds are an option few will go in for.

And finally, equities

Paradoxically, the most risky option in these times, the equity market, is providing the greatest returns, with the benchmark Sensex even scaling the 50,000-mark last week. But where is the money coming in from? Well, it is Foreign Portfolio Investors (FPIs) who have pumped in a record US $36 billion into equities so far this fiscal up to March 10, the highest since FY 2012-13, according to data released by the RBI. According to analysts, domestic equities are attractive for foreign investors due to higher returns than in other Asian markets. Further, the erratic movement of indices globally has led to net inflows into the domestic equities market.

There is a gush of liquidity in the global financial markets after the US announced a US $1.9 trillion pandemic relief package, which ensured regular flow of assets into emerging markets like India. Except India, most Asian and emerging markets have seen FPI outflows. This, ironically, is a cause for worry. Historically, massive investment inflows have always been followed quickly by far greater outflows as punters and FIIs resort to profit-booking after playing up the market, exiting in quick time. As and when that happens, there will be a bloodbath, because, frankly, there are no real economic fundamentals driving this maniacal growth in the stock market.

So what is to be done? Well, like many other wise men, I am scratching my head. What about you?

The writer is a communications consultant and clinical analyst. narayanrajeev2006@gmail.com Views expressed are personal