HIGH INFLUENCE OF INVESTMENT MARKETS

Investment Scenario in IndiaEmerging strong even during the scariest phase of global financial meltdown, India has become one of the favorite investment destinations for the foreign investors across the globe. The investment scenario in India is getting better and better with each passing day due to high confidence level of the investors. Today, India is considered the 4th biggest economy in the world. Its impressive GDP rate, especially in the field of purchasing power, has catapulted it to second position among all the developing nations. According to forecasts, Indian economy will grow to become 60% in size of the economy of US. It will also witness macro-level stability in economic conditions. Behind all this, investment can be said to be the key player. To know investment environment in India in the best possible way, it will be wise to consider the performance of 3 core sectors including education, infrastructure and security. Private Education Investment Though the Foreign Direct Investment (FDI) in educational sector, comprising higher education, has been allowed by the Indian government, there are still many shortfalls that need to be overcome. An increase in the enrollment figures is being constantly witnessed. But, when it comes to cumulative states expenditure, the scene is quite gloomy. For the period 2007-08, a fall of about 18% has been seen in the total expenditure. Further, a clear gap in the per capita education expenditure among the states can also be seen. Per capita fund inflow to educational sector in Uttar Pradesh stood at Rs 483 whereas in Bihar it was Rs 487 in 2005-06. Himachal Pradesh has Rs 1777 and Maharashtra and Kerala show Rs 1034 per capita fund flow.Despite good financial performance of many of the states, their spending scenario in educational sector has been found in poor condition. Infrastructure Investment: Investment scenario in India in infrastructure sector is attractive. Many sectors have been allowed to receive private investment, which is truly a turning point. In past few years, many road projects have been launched under National Highway Development Programme. The project costing neared about US$ 12 billion. In this, the foreign construction companies have also been invited to take part. Telecom sector and power reforms have also experienced massive improvement. Telecom and Oil and Gas sector are seeing disinvestments processes. Government is also thinking of introducing a more integrated transport system with chalking out plans for the investment. It cannot be denied that India has been successful in launching plenty of infrastructure projects with encouraging private participation in the sector. The booming IT and BPO sectors of India are the absolute testimony to its success story in the infrastructure projects. The overall outlook of the roads and highways in India has also changed for the better. Many cities and towns have been inter-connected to each other. Both state and central governments have dished out significant amount to the development of highways.

Security Investment: Security investment scenario in India is also bright. While several industries in India are grappling with the impact of global meltdown and recent Mumbai attacks by terrorists, the

one industry which is predicted to register profits in near future is the Indian security industry. The private security business in India is expected to become Rs 50,000 crore (Rs 500 billion) worth industry.

Current Investment Scenario in India Globalization and Foreign Direct Investment form an integral part of all the developed as well as developing economies. In fact, the growth of the underdeveloped economies is also dependant on these key factors. These components equip any nation with new skills, new items and provide smooth access to markets and technology. Today, every nation across the globe is looking for foreign and overseas investors. Whether it's India or China, everyone wants foreign investments. According to recent trends, India is only second to China in the league of favourite investment destinations. In the report issued by Department of Industrial Policy and Promotion, the fund inflow to India reached US$ 27.3 billion in the period 2008-09, considered from the month of April 2008 to the month of March 2009. Last quarter of 2008-09 alone witnessed an inflow of approx. US$ 6.2 billion. In the reports issued by Reserve Bank of India for outward investment from India, a growth of 29.6% to US$17.4 billion has been seen in the period 2007-08. The figures do not include individuals and banks. India is considered the 2nd highest foreign employer in the United Kingdom after the United States. Global Investment Scenario Along with India, the others who are participating in the race of investment among the developing economies are China, Singapore, Malaysia, Russia and Brazil. Most of them are vying for contracts from USA and Europe. Ten Things the Investment Management Industry Should Take into Consideration Following the Financial Crisis Focusing on what the industry has identified as challenges in the post-crisis period, such as asset allocation, risk management, management fees, and the redistribution of roles in investment management, as well as ethics and regaining the trust of the investor, the monograph highlights 10 key considerations: 1.For effective diversification, consider correlations at the relevant time horizons. Instantaneous correlation between the returns of different assets and asset classes does not fully reflect the behavior of the returns of assets or asset classes in times of crisis, when there can be shifts in medium-term trends or an increase in correlation at long time horizons. 2.Review asset allocation more frequently. Today s markets experience more large swings in market valuations and change behavior in fundamental ways that affect the forecasts of entire asset classes and require dynamic asset allocation. However, while dynamic asset allocation holds the promise of higher returns, it is a source of risk given that it shifts assets dynamically from entire asset classes, leaving little margin for mistakes in timing.

3.Consider extreme events as they do occur more frequently than today s risk models forecast. Empirically, we know that returns distributions are fat tailed. In addition, there are hidden sources of extreme risk that have to be accounted for. These facts need to be incorporated into financial decision making. 4.Consider carefully the magnitude of losses should one need to unwind positions rapidly. Recent events have demonstrated that a sudden withdrawal of liquidity from markets might occur, leading to potentially very large losses on leveraged strategies. 5.Consider the complexity of the web of relationships between agents and between investment products. The structure of market links has come to the forefront as a source of risk as complex derivative products might propagate losses throughout the economy well beyond what was believed realistic before the 2007-2009 crisis. 6.Look at macroeconomic quantities as the real economy does matter. Though macroeconomic variables move slowly, they are important insofar as they can signal the building up of situations that might lead to large losses. 7.Consider the risk that hedging strategies can fail given that apparently solid counterparties can and do fail (Lehman Brothers). With the crisis that started in 2007, hedging has acquired a new dimension as the possibility of failure of counterparties such as major banks and insurance firms has increased beyond what was considered likely before the crisis. 8.Build up multi-asset and multinational capability: Markets are global and investors increasingly expect those who manage their money to have a global view on the investment environment. 9.Build up the quantitative capability to address the size and complexity of markets, and the fact that optimal execution increasingly calls for automation and quantitative capabilities. 10.Align the promise with what the investment management industry can deliver. Investors have been stunned by large swings in market valuations three times in the past 10 years (1997-1998, 2000-2002, 2007-2009). The industry needs to regain investors confidence. Sergio Focardi, co-author of the monograph and professor of finance at EDHEC Business School (Nice, France) said, From mid-2007 through the first quarter of 2009, financial markets were shaken by a series of shocks. It is important that the investment management industry learns lessons from this crisis to understand what needs to be done differently going forward. Everyone in the industry will need more science, a more systematic consideration of the true risks that lie ahead, be they the risk of extreme events, liquidity risk, counterparty risk, or systemic risk. At the same time, investors are asking for more transparency in products and processes and are increasingly reluctant to pay high fees for low returns. The industry needs to propose strategies and a fee structure more aligned with today s reality. We hope that the monograph s findings can help impart valuable lessons on today s industry players.