The quarterly survey across eight cities finds fall in confidence caused by poor global outlook, high domestic interest rates and inflationary concerns. Still, investors expect Sensex to climb to over 20,000 by year end

The Indian Investment Confidence Index (ICI) is at its lowest in two years, due to the combined impact of the global economic slowdown, high domestic interest rates and inflationary concerns, according to a survey conducted by JP Morgan Asset Management across eight cities in July. However, a majority of investors and advisors in India expect the benchmark Sensex to trade between 20,000 and 22,000 by the end of this year.

Interestingly, the retail confidence index although 4.2 points down from the previous quarter, ranked the highest (137.5). The advisor confidence index was a distant second (124.9), whereas corporate confidence was at the lowest (109).

Christopher Spelman, whole-time director and chief executive officer of JP Morgan Asset Management says, "ICI for the current wave has been impacted by a significant fall in the outlook on the global economy, domestic interest rate hikes and inflationary concerns. Despite this negative news flow, the Indian financial fraternity maintains a positive outlook with a majority of investors and advisors expecting the benchmark index to trade between 20,000 and 22,000 by the end of this year. Another interesting finding is that young investors (age 22 to 25 years) appear highly enthusiastic about investing in mutual funds."

ICI, which was launched in August 2009, captures the confidence of retail and corporate investors, and financial advisors on the Indian economic and investment environment on a quarterly basis.

The numbers were calculated on the basis of responses received from 1,623 respondents (retail), 50 corporate treasuries, 269 independent financial advisers (IFAs), 20 banks and 20 national/regional distributors (N/RDs).

Banking and financial services emerged as the most attractive sector for investment among retail investors and advisors. Investors appear to have turned cautious as preserving capital emerged as a popular strategy among 40% of retail investors surveyed. Further, just 40% of investors were likely to turn "somewhat aggressive" about their investment strategy in the coming six months, as compared with 57% in the previous quarter.

In corporate treasuries investment activity showed noticeable decline across all instruments. Money market mutual funds remained the most popular debt instrument. It is interesting to note that 50% of corporate treasuries expect to maintain the current investment level in liquid funds ahead of the Reserve Bank of India's regulation on limiting banks' exposure in liquid funds to 10% (effective from January 2012).

The survey found that IFAs (independent financial advisors) in Mumbai are a despondent lot and their confidence is the lowest this quarter. Easy to understand when one finds that personal networking continues to be the most preferred source of information for investment decision making among retail investors.
 
Arun Jethmalani, managing director of ValueNotes, the independent market research agency of JP Morgan that conducted the survey, says, "Growing vulnerability of the global economy and uncertainty in the domestic investment environment have taken a toll on investment confidence, dragging the ICI down to its lowest ever. Interestingly, confidence within India Inc. appears to be shaken the most, amidst rising inflationary pressure, poor governance and corruption; even as the advisor community is a little more optimistic about financial investments."