As I have written regularly in my blog. I do not believe in reinvention of the wheel. When I want to decide on where to invest, I do not fire up a spreadsheet and do all kinds of calculations to arrive at a conclusion. I think it makes a lot more sense to go with people who are professionals and do this for a living. As such, I have been watching a lot of television shows lately having Analysts and have benefited from their ideas.
Before getting into specifics of each asset class investments, let us look at the overall situation in the asset classes first. Equity has done quite well last year and is likely to continue the trend for the next 2 years. A Nifty level of 10000 plus is almost a given and how far it will go from there remains to be seen. Debt had also done rather well last year but with the interest rates almost bottoming out now, it is unlikely to repeat these returns in the current year. As far as Real Estate goes, it is definitely a good time to buy a house if you plan to stay in it. However, if you are looking at RE for investment purposes, I will not recommend it at all. Rental yields in India are still quite low and with the recent cap on interest expense that can be charged off, it just does not make sense. Gold is never really on my radar for investing, so I will not comment on it.
Specific to Equity the following factors are at play right now:-
- Markets are fairly valued if you see that they are at 17 times 18-19 earnings.
- ROE of top rated companies are at 12 % and this needs to improve.
- With economic activities increasing, consumption will be on the rise and capacity utilisation of companies will pick up, leading to better margins.
- Investment through retail is increasing and ticket sizes of transactions are going down. This is a healthy sign from an investment perspective.
- As savings increase in the economy, more money will inevitably find its way into equity. Real estate is no longer a favoured option for the retail investor.
Based on this the following calls can be taken for the current FY:-
- Infra stocks are likely to do well between now and next General elections, driven by the aggressive outlays in this area. You can look at select Infra stocks or go with a MF scheme with focus on Infra sector companies.
- IT stocks have been beaten down, primarily due to issues related to the US situation. These are good companies, going at fairly good values now and are definitely worth a contrarian call. Pick up good IT stocks or invest in a good MF scheme with technology focus.
- Pharma stocks have had a similar fate with their pricing woes and the FDA situation from US. Again, these are good companies that will do well in the long run. Also worth a contrarian call with both direct buying as well as a Pharma MF.
- Dynamic asset allocation can be a good option for people who are not inclined to look at asset allocation route. ICICI Balanced Advantage fund or Franklin PE ratio fund can be good choices in this regard.
The calls here do have a higher risk as compared to the plain vanilla SIP most of you do, but the rewards will be significantly higher too. If you have the stomach for it, I suggest you go for it in this year. I know I will be doing so myself.