• Insights

The concept of Double Drip was based on my conviction that unlike a sharp vertical drop in 2008, the gravitational drop in 2011 and 2012 will be more in drips, with lesser intensity as against 2008 but more frustrating and that impact on different asset classes and economies would vary vastly. To my lack of surprise, most of the events played out exactly. Let us take a score-card of my predictions at the start of 2011 on various components of asset classes and the way it actually played out, besides what 2012 holds for us:
Chinese currency: The view about continued undervaluation without any serious attempt on meaningful appreciation hit bull’s eye. Expect no material change in 2012.
US tightening: As expected, the Fed Reserve continued with its dovish stance on quantitative easing. No major change expected in 2012, more due to intellectual vacuum on ways to undo past damage.
Gold: The prediction of gold’s continued outperformance in the U.S. dollar and being the best performing asset was bang on. In 2012, expect a repeat good performance but not a stellar outperformance like 2011.
Oil: The view about top formation at Rs.5,000-Rs.6,000 played out perfectly. Continue to maintain expectation of crude starting to head lower on its way to forming a long-term support at close to Rs.2,925-Rs.3,375 by 2020.
Metals: While it took little longer to play out, Q4 in 2011 eventually saw metals/industrial commodities making very sharp reversals. Expect even sharper reversals in 2012, mostly in the first half.
Agricultural commodities: The view about base formation for long-term sustained higher levels and start of a long bullish trend in agri-commodities pretty much held out. Maintain view on uncomfortable and stubbornly higher levels of prices for almost next one decade till the base becomes much higher. The only risk to this view is the world getting sensible to withdraw artificial excessive liquidity and settling for lower global growth next decade, averaging out artificial excess growth of the last few decades.
India: As predicted; (a) consumer price inflation remained seriously uncomfortable though 2011, (b) interest rates seemed to peak closer to double-digit mark and (c) consensus forecast of near 8 percent GDP.
LAICA: There was definite moves towards Latin America, India, China and Africa (LAICA) replacing BRIC as future growth markets. However, India seems to be now becoming a global disappointment, Russia getting renewed interest and China heading to make its own identity radically different from the bucket of BRIC or LAICA.

Now for some disappointments
My view about reasonably acceptable progress in India on the fiscal and monetary front backed by government measures fell flat on the ground as attempts on retail FDI and similar reforms cannot be termed as acceptable progress, by any means.
Geo-political events: While prediction on geo-political events didn’t materialize, the preventive checks by way of natural calamities in various parts of the globe emerged as the new threat. Expect such natural calamities to sustain with global warming.
So that’s an 8 on 10. While one expects 2012 to still be turbulent, it may not be as frustrating as 2011. In the interim, wishing all my readers a healthy 2012 and praying for the courage to hold the nerves!

(The views expressed here are personal.)

Bharat Banka is the Founding CEO of a leading private equity firm.

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Bharat Banka, Double Drip