1. Markets can remain irrational far, far, far longer than you can think.

2. One/two /three overambitious Central Banks can keep interest rates artificially low for decades.

3. We have no clue how the markets will react to higher interest rates – from 2008 we have ASSUMED benign interest rates.

4. Risk is inherent in EVERY investment. As the price paid increases, RISK INCREASES. So the Indian markets are more risky now than they were about 6 months ago. The earnings are yet to catch up.

5. If the FII pull out the debt and the equity, you will see the rupee volatility. Currently it is artificial….or so we think.

6. The best thing about Raghu Ram Rajan is that he is promising a POSITIVE real return to new investors and retirees. So do not think interest rates are coming down in a hurry.

7. Second rung Indian corporates are able to borrow at Libor + 4%. So expect more Indian paper to be floated abroad.

8. Indian mutual funds are soaking up a lot of corporate debt – hence the pressure on the banking system is less.

9. NPAs are a big big headache and the private sector banks are also holding a bit.

10. Do not trust financial models – inspite of what your professor told you – real life is far more complex.

11. Reduce/Eliminate risk in the debt instruments – it is not worth it. The risk/ return ratio in the debt market is just not worth it. All the risk should be in the equity market.

12. Always be preparing yourself for a crisis – Chinese revolution, European Implosion, Na Mo’s government getting into trouble, health problems for Na Mo – we have no clue where the next crisis is coming from.

Read this column 🙂

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  1. Rajan promising real interest rates looks like a good idea. It puts pressure on inflation and the expectations with everyone are clear. Repo rate is expected to be about 1.5 to 2% above CPI

    If Namo can deliver on ease of business and infrastructure improvements, we should hopefully be in for some benign inflation in the mid to long term. This should lead to lower interest rates.

    Inflation rate at 4%, Repo rate at 5.5% and Housing loan at 7.5% would be a good medium term target.

  2. i like no. 11 the most for me.before 2 months or so , i switched to long term gilts funds from liquid funds to make killings on reversing indian interest cycle , but now i realized the risk /return is horrible in this debt compared to equity.

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