How will the asset classes fare in 2017?

Now that we are into 2017, it will be a good idea to look into the prospects of the different asset classes. As usual, I will deal with the 3 asset classes of Debt, Equity and Real Estate as I do not understand much about the others. Also, I will look at the fundamental context and avoid the clutter of any numeric analysis.

In all ways 2016 had a rather unexpected end, which was surprising as it was progressing rather well till we hit November. Despite Brexit and some other events, the overall scenario in the Indian economy was a positive. The monsoons had been good, GST seemed to be on track and it seemed that the corporate earning was on the way to recovery at long last. However, the demonetization move by the government has changed things rather dramatically and the impact of it will be felt hard at least in the short run. Firstly, the economy as a whole and some specific sectors in particular have been affected rather badly. There will be a likely impact on the GDP and corporate earning momentum, which was almost a given from this quarter, will probably be pushed back by a couple of quarters. The Fed rate hike in the US and the FII sell off associated with it in the Indian markets will also have a negative impact.

So how will Equity behave as an asset class in our markets in 2017? Well, right now it does seem that times will not be very good for equity in the first half of the year. There are far too many negatives in terms of the news flows and even if the budget happens to be a great one, it will probably only be able to pull the equity markets back marginally. In the second half though, there are great chances of a revival in the economy as well as the stock markets. GST rollout, the cash situation being better, impact of assembly elections being over and the effect of the budget being felt will all add up significantly to improve consumer confidence and therefore business volumes and subsequently corporate earning. It is very likely that the markets will follow suit. I see Nifty having a strong support at 7500 and also a possibility of reaching levels of 9000 towards end 2017.

So, in essence equity will very likely be a rewarding asset class in 2017. You will need guts to participate in it in the first half, but it is important that you do so in order to reap the probable benefits later on. Once markets start rising, the feeling you may get is one of being left out.

What about debt as an asset class in 2017? Well, with the rate cut cycle now being nearly over, debt investments are really not looking very bright in 2017. Unlike in equity, the turnaround of the rate cycle will probably happen only in 2019 or so. As a result any fresh investment in debt, except for the long term ones such as PF, PPF and SSY really make very little sense.

What about RE as an asset class in 2017? The banks have now finally reduced their rates based on a nudge from the PM. It is therefore easier to buy a home now and the home prices may also see a dip based on the demonetization effect. So, if you are buying a home for your own stay, it will be a good idea to seriously look at it in the latter half of 2017. However, as an investment do not look at RE in 2017 at all. There can be serious changes in the RE landscape soon and dealing with property may not be everyone’s cup of tea. Locking up a large chunk of money when you can invest it in favorable equity markets will be a really bad idea.

In summary bet on equity this year, almost completely. I will write some future posts on asset allocation as well as my own plans.

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3 thoughts on “How will the asset classes fare in 2017?

  1. Dont see big rate cuts going further . How can property market revive without job growth ?

    Nifty P/E still above 21 . What P/E range do you expect in first half of 2017 ?

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      • First time in last 15 years none of the asset classes are performing . Expecting market to give opportunity to add to P/E based manual SIP for next 6 months .

        Like

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