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Equities still hold trump card for investors
Highlights
We can take comfort from the fact that Indian equities have not delivered negative returns in two consecutive years and hope that history repeats in 2016, for our benefit. Also, the green shoots from certain macro indicators point towards a prolonged growth
At the onset of the year 2015, the forecast was that equities would outperform all asset classes, though debt could offer a decent risk to returns. We’re now at the year-end and have witnessed one of the most volatile years in stock markets in the recent past. Both the major indices have reached their all-time highs in the first quarter of the year and ever since have struggled to keep pace even on the year-on-year performances.
To the hits, the US economic performance, the Indian economic resilience, the INR resistance and the Fed hike form the list and the misses are the Chinese stock bubble bust, the not-so-soft landing of their economy, the EM credit & currency crisis, the quantum of price crash in oil & other commodities and their toll on dependent economies. Of course, terrorism remained a harmful factor that could scuttle the direction of not just the world politics but also the economics. This shouldn’t, however, desist from attempting to forecast the year to come and make bets on certain ideas.
This year, I believe the critical mass on the climate change has been achieved. This certainly tilts the scales in favour of renewable energy technologies and their users. Of course, the low oil/commodity prices would partly negate these benefits. But, I guess, the new normal is in the offering to help plan for the long-term. Sure, some disrupting technologies will emerge in these fields which could alter the future of these alternatives and thus the businesses but the way forward seems to be migrating to these and also staking a majority share vis-a-vis their traditional peers.
One could so ponder to identify the opportunities in these businesses, though, not much would be available for public currently but sure could become mainstream in the days to come. As an asset class, equity still would hold the trump card but with those businesses which would be affected from these technological advancements are better bet. So, it’s not just the companies which define these technologies but also those which operate in this environment come to fore. Hence, one should be wary of the quality of the management which plays a significant role in determining the direction of growth, adeptness and adaptability of a business.
As someone said, the New Year doesn’t change much except another day or date, but sure one step closer or nearer to the deadline or goal at least in terms of their timelines. So, one has to always be more agile and responsive in spotting the newer opportunities while retaining the age-old techniques of investing. The fine balancing act in investment is tough, but not impossible.
The single most important resolution one could make is continue to remain an investor in the adverse times of the worlds. This, I suppose, is the biggest and most critical resolution of all. As an investor, one exhibits the discipline to endure and persist with a high conviction in an idea that provides magnificent results in the long-run or adhere to a way of investment that helps one make great strides in reaching the goals. This separates one from the trader whose primary goal and method is quiet divergent to an investor and their patterns.
We can take comfort from the fact that Indian equities have not delivered negative returns in two consecutive years and hope that history repeats for our benefit. Also, the green shoots from certain macro indicators poise to a slow and prolonged growth. Political and legislative inconsistencies nevertheless wouldn’t affect the way climate or terror would impact, the economic output. Now that the monkey is off the back of the US Fed, the RBI could concentrate more on the local trends and would surprise us with another cut in the current financial year i.e. a New Year bonanza.
Systematic route of investment accompanied by averaging during the dips is the best strategy to approach towards equities with a horizon of 18 to 24 months. The Chinese deflation import lingers with higher influence on our inflation and an exposure to the long term debt is ideal with a similar horizon. Real estate would see a spurt in the low income group, partly also thanks to the Govt.’s initiatives, despite battling the supply glut in the metros. USD could play the spoilsport for the currency normalization and thus the domestic prices of gold and oil.
(The author is a practising financial planner and could be reached at [email protected])
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