Too much of anything is a punishable proposition in financial markets. By that logic,

RELATED ARTICLES States shift investments to short-term govt securities Bain, TPG's Lilliput woes a warning on India investing Indian investments won't harm Pak Industry: Delegation member Nomura calls for urgent steps to boost investments Banks may need up to $50b extra equity: Fitch

the bears should have their noses bleeding in 2012 after having ruled the market all through 2011. The year gone by leaves us at a vantage point to watch how grippingly things are poised.

Inflation, the single-biggest irritant for the economy all through this past year, has to cool off now, thanks to a high base effect, slowdown across major economies and the good monsoon last year. Interest rates have hit their peaks and will soon be in the reverse cycle. The stock market has seen too much of selling for far too long, and the only way from here should be up, if not sideways for sometime. Revival signs in the US also indicate that American consumers are beginning to spend again, and money will flow out to the outside world soon enough.

The New Year holds out a lot of promise, but silver lining has to have clouds around. Even the best fund manager on Dalal Street would now talk about the prospects for the market with multiple ifs.

Most brokerages have revised earnings growth expectations downwards for the year as India Inc readies to take the real hit of a high interest rate regime, demand slowdown and delayed capex.

In a recent fund managers’ survey, conducted by ICICI Securities, most fund managers projected Sensex to be in the range of 16,000-18,700 by the end of March, 2012. Things can get worse if the euro zone comes under a spell of recession or sees disintegration, or if there is any flare-up in geopolitical tensions. Back home, any further slippage in government finances that can lead to a revision in credit rating, prolonging of the policy inertia or avoidance of our market by FIIs may turn things really ugly.

The law of nature commands you to come down to earth when there are signs of distress. If you find the conditions too tough for the stock market, the approach should be to stay with some good dividend paying companies to ensure a fair share of return. If and when the market starts moving up, the first phase of recovery will have to come in large-caps.

And if a Reliance or L&T or SBI looks listless, there would still be the HULs, ITCs and M&Ms to help you ride the rally. Some experts like Sankaran Naren, chief investment officer of ICICI Prudential Mutual Fund, suggest a still safer way of using the systematic investment and systematic transfer routes to enter equities in steps as the market gains pace.

Most fund managers in the aforementioned survey said stock valuations are more reasonable now, and they are cautious only for the short term.

Still if equities look gloomy, you have safer instruments offering double-digit returns in the fixed income basket. Even in best of times, 17 per cent was the average ballpark figure for return on equity. And some of the NCDs are today offering as much as 13.5 per cent returns per annum. But make sure to reassure yourself on the fiscal health of company before you pick such an instrument.

Then you also have Bank FDs offering close to 10 per cent. Debt funds of all categories are offering near 9 per cent and even in a falling interest rate situation, those with a maturity profile of one to three years can offer healthy returns.

Commodities may not look very promising due to the global slowdown, and base metals and crude will have to wait for a revival in industrial growth for the next upsurge. But growing consumer demand will still create opportunity in agro-commodities.

Gold is in a correction mode, but for all you know precious metals can only turn more precious if economic crises (like the one in the euro zone) unfold in a bigger way, political tensions intensify and US dollar weakens.

Real estate, too, appears to be at the end its plateau and is poised for the next rally. Softening interest rates could provide the much-needed fillip to energise this. Of course, this asset class requires investors to be a little more alert about the risks of land tussles, debt-heavy developers and other structural problems in the industry, such as labour shortage.

Financial markets are never devoid of opportunity for the smart investor. You know where the money is, and how to create wealth out of it. Happy investing!

bijoysankar@mydigitalfc.com