In my view, 2011 will be a tricky year for a few specific reasons. Compared to other emerging markets, India is not particularly cheap at 19x 2011 earnings. This leaves little room for any error on the earnings’ front for which the consensus seems to be 20 per cent growth in FY12.  In my opinion, the street is too optimistic and there is a risk of a downgrade. Crude above USD 85-90 per barrel is always a dampener. With elections in five states, inflation at high levels, and the government still trying to defend its credibility in the light of all the corruption scandals, we do not expect the government to meaningfully raise the prices of gasoline and diesel. There will thus be an additional strain on the government’s finances. In light of the recent corruption scandals, policy-making may come to a halt.  

European countries, other than Germany, are still sputtering on growth and government finances – definitely an event risk that can create a round of risk aversion. The US economy is showing signs of recovery and therefore we expect incremental allocations to India to slow down. Going forward, I think 2011 will be a stock-picker’s year – cer-tain ideas that are relatively insulated from government policy-making and depend on the billion peoples’ aspirations will do well. We favour ideas in healthcare.  While infrastructure is a theme with a high potential, execution and corporate governance have been major issues. Investors will therefore look for a good margin of safety to buy these stocks.  

We are also biased toward structural stories in the agri-related space because the arable land keeps diminishing for various reasons (industrialisation, housing, global warming effects, etc) and therefore each available hectare of land needs to be more productive to feed a growing population with increasing food requirements. There are a few companies here that could be multi-baggers over the next few years. We also like healthcare because of the globally available size of oppor-tunities for our domestic generic play-ers. In addition to that, the domes-tic market is growing at a healthy rate. Meanwhile, the capex cycle has not recovered despite India’s recovery from the 2008 downturn being one of the best.  

On top of that, capacity utilisations for most of the sectors are close to max-imum and now the baton for growth needs to pass from consumption to investment. We should watch for signs of investment revival. This will happen if the interest rates begin to come off and projects become more viable at lower borrowing costs. Finally, we are also in favour of consumption with the penetration levels of media, travel and tourism, electronic gadgets, auto own-ership, etc having miles to go to catch up with other emerging markets such as China, Taiwan, and South Korea. In all the above-mentioned themes, stock selection is the key. 

Given the scenario, the triggers over the next three months could be a) earn-ings season kicks off mid-January, b) the RBI interest rate policy in January, c) speeding up of infrastructure spend-ing by the government, and d) budget policy in the last week of February. There can also be the unforeseen geo-political and black swan (a la Lehman) events. I would like to advise retail investors to opt for the SIP route when making investments in your favourite mutual funds. At the same time, be mindful of asset allocations.