We are now truly living in an age of disruption. Things are moving and changing at an unbelievable pace. That in my opinion is the single most important factor that should be kept in mind before making any investment decision. One has to be not only extremely vigilant about new ideas and technologies, but also be nimble and flexible in making changes in one’s investment approach due to the disruptions taking place. With the above-underlying theme, I recommend the following 6 options for investors:
1. Equity: We are in the midst of a very strong, multi-year bull market. Though the markets have moved up and are not cheap by any standards, yet for investors it is still not late to invest and make money from equities. Formalisation of the economy and the opportunities that it will present for the organised sector is the main underlying theme of this bull market.
2. Changing India theme: over the next decade India is likely to leapfrog in a big way on many fronts. Changes being ushered in by the attack on the informal or cash economy coupled with bold reforms like GST, Aadhaar-linked direct transfer of benefits, bankruptcy code, RERA Act are going to usher in unimaginable and hugely positive changes to our economic, social and political landscape. An aspiring middle class has already ushered in a consumer boom. With improving data connectivity and infrastructure, economic activity is likely to pick up in a big way. Unlike previous booms, this one is backed by strong regulations and solid reforms.
Hence do participate in what is likely to be once in a lifetime experience of witnessing your home country change dramatically. This participation can best be done through the stock market by investing in leading companies in sectors like infrastructure, logistics, housing, data connectivity and management, financial services, rural and consumer products. It can also be done by investing in start-ups, new technologies and business ideas focusing on some aspect of this changing environment in India as well as real estate projects focusing on affordable housing and various other ways.
3. Gold: After several years of consolidation, gold prices are consolidating and gradually moving higher. Gold is perhaps the oldest and the most durable asset known to mankind. It is a natural hedge against both inflation and uncertainty. In the disruptive times that we are living, gold certainly provides us the comfortable hedge against the various uncertainties surrounding us.
4. Commodities: Metals and some agricultural commodities like tea and sugar are in the midst of a great Bull Run. While investing a certain part of your portfolio in these commodities makes sense, one needs to be extremely watchful of global news and trends as sentiments in commodities are very fickle.
5. Cryptocurrency: Blockchain technology is certainly going to revolutionise not only payment methods, but also the role of governments and central bankers globally. The worry is that like any other new asset or technology, it is impossible to assign a value to this. Also, thanks to the hype surrounding it, the values of nearly all cryptocurrencies have skyrocketed. However, given the manner in which new technologies are moving forward and changing our world, it will not be wise for any investor to completely ignore this crypto-currency phenomenon. At the same time Bitcoin and other such currencies are so volatile and expensive that chasing them at these prices does not make sense.
I expect 2018 to be a year of consolidation and rationalisation in the crypto-currency world. Hence, investors must keep tracking price movements in Bitcoin and other such currencies with an open mind and allocate a very small percentage of their portfolio to these new currencies. I suggest the maximum cap on these investments should be limited to 5 percent of your portfolio. This amount should also be staggered to average out your acquisition cost. Also, investors who are old age pensioners or completely risk averse should not invest in this asset.
6. Cash or very safe and liquid assets: Whether you are a risk-averse investor or an aggressive one who likes to takes chances for higher returns, a percentage of your total portfolio in bank deposits, treasury funds or any other safe asset with complete flexibility and no penalty on withdrawals is a must. As they say ‘Cash is King’, especially during volatile, disruptive times that we are living in. For conservative investors this cash allocation can be a higher percentage of their total portfolio as it offers them portfolio stability. For savvy investors this cash can be a great asset to capitalise on panic situations which keep happening regularly in different markets these days.
So, whether it is oil, after it crashes and trades around $40 or the equities after the Sensex has taken a 20% correction, this cash can be deployed by smart investors to earn the extra alpha returns on their portfolio. I conclude by predicting that 2018 will be a both challenging as well as very interesting year for investments.
(By Ashish Kapur, CEO, Invest Shoppe India Ltd)