In the equity markets, the year 2017 has been a year of all-time highs. The year-to-date (YTD) returns of the BSE Sensex is over 27%. As we reflect back, it appears that one could have invested more or allocated more to equity. On hindsight, it does look good. But then, decisions are made on real-time data and information. And this information is first validated and then executed. There is a lag and the time taken by you as an investor to execute during this lag can also determine your returns.

What went right

As we sit and review on the performance, as an investor you can put into perspective as to what went right! If you are a process oriented investor, the answer should be—asset allocation. We doubt this process, as the benefits from this process does not seem to deliver immediate returns to the investor. Let us rewind back to the beginning of 2017. The demonetisation effect of November 2016 was still being felt. There was gloom in the equity markets. And in the month of January 2017, the Sensex closed the month with a gain of 3.9%. And the month in which GST was being introduced (July 2017), the Sensex delivered a monthly return of 5%.

For the period 2010-2017, except in 2014, when the Sensex delivered a return of 30%, the year 2017 has delivered the highest YTD return . This kind of return would not have been predicted in the beginning of the year. In October 2017, the Government came out with the proposal of recapitalisation of PSU banks for `2.11 lakh crore. October witnessed a monthly return of 6%.

The year 2017 was also the year of elections as seven states witnessed polls and BJP won in six out of the seven states, including the largest state—Uttar Pradesh. There is a perception, right or wrong, that the party managing the Centre along with control of the state manages to get more developmental work in place. This again contributes to stability and, in turn, more assurance in better co-ordination between the state and the Centre. This again helps the equity market to grow.

Outlook for 2018

Equity as an asset class is volatile and the returns will be lumpy for sure. What is in store in 2018 is not known. What is known is that investing in India over a multi-time period, should help generate inflation beating returns from the equity asset class. In this asset class, when the fall happens, it can be steep as seen in 2008. And the plough back can also be fast as seen in 2009.
Today, with consolidation and reforms are happening in the Indian economy as seen in the implementation of ‘One Nation – One Tax’, in the form of GST. Then there is the goal to promote credit growth, reforms in the form of recapitalisation of PSU banks, power supply for all before 2020. This again coupled with improved political will in the housing sector and increased focus on infrastructure as in road building and development of water ways augurs well both for the economy and the equity indices. All of this hinges on execution.
The strategy for 2018 is simple. Have an asset allocation in place through the Investment Policy Statement.

The writer is founder and managing partner, BellWether Advisors LLP