"Investing is the intersection of economics and psychology," said Seth Klarman. With campaigns like "Make in India" being talked about around the world, India's acche din are here to stay. Global investors are believers of the India story- long term.
The International Monetary Fund (IMF), in a report released by World Economic Outlook said that the growth in India is expected to pick up to 6.4% in 2015. This would be a result of an increase in exports and investments. Now that the election euphoria is over and the macroeconomic is looking positive let us take a look at various investment opportunities for 2015.
Every year we make new financial resolutions and investment plans. However, it is essential that we review all the asset classes and their performances in the past to make the right investment decisions. Do take a look before you chalk out your investment plan for 2015:
The golden shimmer- With an increased speculation about interest rate hikes in the first half of 2015 along with a stronger US dollar, pressure on gold prices shall continue. As the metal has been weak since the last three years and shows no signs of immediate recovery, it is fast losing the safe haven investment tag. However the second half of 2015 shows some shimmer. The pressure is likely to subside once the interest rates rise is underway. There has also been an increase in demand in the Asian markets for the metal, especially from China. This will support the forecasted price rise in the second half.
Fixed deposits- From a financial planning perspective, fixed deposits have a crucial role to play. Though the returns are comparatively less, FD's continue to be a safe investment option. It is also a good way to balance out one’s investment before venturing into the high returns, high risk investment category. For individuals, while bank FD's are thought of as closest to risk free returns, the returns are comparatively humble. However, corporates continue to offer higher rates even as banks cut down on the deposit rates. The spread has widened up to 100 basis points and this makes it an attractive investment option. With a slightly higher risk appetite, depositors can now enjoy interest rates up to 10.5% with a three-year maturity.
Equity market- 2014 has been an exciting year of investors in the equity market and they have now left to wonder if the party will go on. The broad based rally has seen the valuation of many stocks soar and this will make it tougher for equity investors. Having said that, we must note that mid-cap and small-cap companies' valuations have corrected a lot and these stocks trade at a 30-50 per cent discount to large-cap valuations. However, the fall in crude prices and the monetary policy easing are good signs for the markets and the economy. The rally may continue on positive sentiments and interest sensitive sectors shall continue to do well due to this. The focus is on sectors like Real estate, Auto, Banks. The 'Make in India' campaign also makes manufacturing very attractive.
Equities can be definitely looked at positively for long term investments. However do not forget the good old equity market advice, be fearful when others are greedy and greedy when other are careful. There is a global risk associated with the drop in crude prices and the news of a stronger US dollar is not very motivating for global equity markets.
Real Estate- It has been a mixed year for real estate with a lot of activity and announcements throughout 2014. Pricewaterhouse Coopers (PwC) India report stated that the country will see increased economic growth. The removal of barriers to foreign investment will spur demand for construction in the next 18 months. The government has budgeted and planned for many industrial projects and an estimated USD 1 trillion is being spent of infrastructure upto 2017. The total construction market in India for FY2014 was USD 157 billion, an increase of USD 4 billion over FY2013. Infrastructure accounts for 49%, housing and real estate 42% and industrial projects 9%. We are country of 1.2 billion people and the demand for real estate is growing. Housing continues to be a favored investment asset among the masses. The report highlighted private housing sector as the key growth area. Improvement in economic conditions has the potential to drive demand for real estate. This boost will generate a positive cash flow for developers. 2015 has its share of challenges and a major correction seems unlikely, however a lot depends of project implementations with reference to the demand and supply.
Mutual funds- With many factors currently at play in the Indian equity market, short term volatility is inevitable. But for investors who believe in the long term India growth story and who wish to skip the volatility, systematic investment plans are among the best options available. Investors who are patient and disciplined with their investments adore this option since it allows flexible investments and ensures participation minus the panic caused by volatility. While one can pick and choose sectors and invest in bluechips independently, mutual fund investments provide for good long term returns. Retail investors unfortunately have a tendency to invest at peaks and exit during declines. Mutual funds eliminate those risky decisions and allow investors to participate in the overall growth story.
There might be some specific asset class that might seem attractive than others. However, there is an adept need to diversify. As they say, don't put all your eggs in one basket. We hope our insights will help you make wiser investment decisions for a brighter 2015.
(Contributed by Rajiv Raj, director and co-founder at Creditvidya.com)
