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  1. Ideal to invest in equities, but know your risk appetite

Ideal to invest in equities, but know your risk appetite

The year 2014 was a blockbuster one for the equity markets with the Sensex delivering a near 30% returns...

Updated: February 3, 2015 1:44 PM

The year 2014 was a blockbuster one for the equity markets with the Sensex delivering a near 30% returns. The average three-year return on Sensex has been near 22%. Other categories, especially the real estate where speculators were left fending, seem to have disappointed the investors.

The debt funds, including the gilt, which delivered a suboptimal return in 2013, started looking up and the losses of 2012 were made up in 2014. Falling inflation only adds to the hopes for a rate cut.

Outlook for 2015

The BSE small-cap index delivered a 70% return and the mid-cap 55% in 2014. However, do expect some consolidation this year.
Debt as an asset class was in a sweet spot. With an all-round speculation over rate cuts, double digit returns are already reflected in the debt MF schemes, especially the gilt funds. Investors who sticked to debt MFs have already seen a positive return.

Gold as an asset class disappointed in 2014. However, as a strategy, an investor must allocate the metal 5-10% space in the portfolio. For the end user, the real estate is a buyer’s market. The investors must revisit the opportunity cost of holding viz-a-viz selling at a loss and reinvesting the proceeds in other asset classes. There is no right or wrong rule, but emotions rule, and controlling the emotions is key to wealth creation.

Strong data from the US and easy policy by Japan ensured their respective markets emerge stronger. With Europe dealing with its issues, especially Greece, wher election is due in January and repayment of debts scheduled for late 2015, this will be an interesting space to watch out for. The US is expected to increase the bond rates, which will impact India.

Investment strategy

With rates expected to fall, fixed income asset class may deliver higher returns. With crude oil at its lowest levels in the past 5 years and a pro-business push by the government like land reforms, mining and telecom, the broad framework for growth and development is falling into place.

So, do you have a framework that helps you in the investing process? Equity, be it MFs or direct equity for 3-5 years, should be ideal. Volatility should not be confused with risk and one must be prepared for higher volatility due to domestic and global factors. Determine your risk appetite and invest accordingly.

Debt again should form part of the portfolio, but look for reinvestment risk. For home buyers, especially the end user, 2015 should bring in more avenues and options. Gold as an asset allocation is always welcome but do not expect any steep return.

The golden rule of investing is to put money in products you understand better. Allocating short term investments into long term and vice-versa not a good idea and do not fall into the temptation of making easy and quick money.

Calculated risk
*  The BSE small-cap index delivered a 70% return and mid-cap 55% in 2014. However, do expect some consolidation in 2015
*  With speculation over rate cuts, double digit returns are already reflected in the debt MF schemes, especially gilt funds
*  Gold as an asset class disappointed in 2014. However, an investor must allocate the metal 5-10% space in the portfolio

By Brijesh Damodaran

The writer is managing partner of BellWether Advisors LLP

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