We are living in very interesting times indeed and no one can really predict with a great deal of confidence as to how things will pan out for the economy or investors. However, some things are clear as far as trends are concerned and we can look at investment strategies based on these likely trends. In this post let me look at the most common asset classes and try to give a road map for the medium term which is till 2017 end.
As far as Debt asset class goes, it is fairly clear that will more cash being sucked out the system and inflation coming down the interest rates are going southwards. The government will also be under pressure now to show that some impact is there. In the RBI policy on 7th December I do expect some rate cuts. What will this translate into for the more popular debt investments and what should you be doing? In my opinion, here is what will happen in the next one year:-
- Interest rates will go down by 1 – 1.5 % in the next few quarters. This will impact not only Debt instruments but also companies dependent on this factor.
- Debt MF especially the short term variety will do well, so keep your investments in these and look at investing more in these.
- You can lock in your interest rates wherever possible, as it seems very unlikely to me that there will be an upward trend in them for the next few years. Invest in long term FD and POMIS if you are comfortable with such products. 3 year FMP which are in the markets now may be a good option too.
- For schemes such as SSY and PPF, the rates will definitely go down in the near future, most probably in January and again after the budget in April. While prediction on the rates is difficult, I think PPF will be at 7 % and SSY at 7.5 %.
- Investors with investment in the above products should not panic and continue their investments as these are long term products and will tide over such issues.
What about equity markets then? Well, the current scenario is clearly bad for many companies and the economy overall in terms of these companies earnings. It is almost a given that the growth expected in Q3 and Q4 will really not happen now. The markets are very likely to suffer fairly deep cuts, especially if the budget also disappoints. I think Nifty will have strong support at 7000 levels and the lowest point will probably be around that. Beyond this point, a recovery both for our businesses as well as the economy is very likely and this may pull up the Nifty to 9000 or slightly more by the end of 2017. What should you then be doing with your stocks and MF portfolio now? Here is what I think :-
- There are stocks in the IT, Pharma and Auto sector available at fairly inexpensive prices today. Start accumulating these and you can reap great rewards when the markets go back to the higher levels in about a year.
- Rate sensitive sectors will do well. Look at Housing and related sectors which will get a fillip both from probable lower prices and lower interest rates. Housing Finance companies, Banks, Cement , Paint, Ceramics, Glass etc are all likely to benefit from this and so will stocks.
- E-commerce companies, Banks will now benefit from the move towards cashless transactions and will do very well in the next year.
- If your portfolio does not have such stocks, build it up with selective purchases over time. The next 6 months or so will be a great time for building a high quality direct stocks portfolio. Put as much money as you can in this.
- As far as MF investments go, stop your SIP and look at making a few one time investments over the next 3-6 months. There is no point in buying with Nifty at 8700 when you can buy at 7500 or so. You have already seen this for your SIP in 2016, do not make the same mistake once again.
What about Real Estate then? While it is widely expected that prices will drop due to a lot of unsold inventory as well as the thrust against black money, I think it will take time for this correction to happen. End of 2017 may be a good time to buy the dream house you are looking at, you will get better prices and also good home loan rates. If you are trying to sell your house, do not do so now unless you really need the money.
The current crisis is also a time of great investing opportunities. If you take the right decisions over the next few months, the impact on your current portfolio as well as your future wealth will be hugely positive.