Tuesday, December 25, 2012

Equity: The best asset class in 2012

It may seem surprising for many, but the matter of fact remains that equity has proven to be the best performing asset class for the Indian investor in calender year 2012 with a 25% return. Indian equity markets have been amongst the top 3 best performing markets of the world in 2012. Nifty which was languishing around 4700 levels in January 2012 will close the year around the 6000 mark. Other asset classes that have been outperforming equity in the past 3 years have given a much subdued return during 2012. Gold was able to give around 10% return but much of that is attributable to the sharp rupee depreciation. Real estate returns have also languished in the single digit range with Delhi NCR recording just 7% growth and Mumbai recording  a 4% return.
 
But most retail investors still remain a confused lot and most of them may not have made money in the equity market. With the wild swings in the equity market, only the nimble footed investors who kept on churning their portfolio have been able to stay afloat. But the good news is that the worst is almost certainly over for equity investment, and the next bull run will gain firm foothold once the RBI starts reducing the interest rates. Investors must take the plunge into equity on every decline for a decent return in 2013 as well. The return on Gold is expected to be subdued in India, as the Indian rupee is expected to gain some lost ground against the dollar after March 2013. Real estate market will continue to give lack lustre returns for 2013, other than some surprises in select pockets of NCR region.
 
When to enter the equity market in order to make reasonable returns? At the current levels of around 19500 on the sensex and 5900 on Nifty the markets seem fully priced given the current earnings estimates. A fall of 10% from the current levels should be a good opportunity to enter the equity market. The fall may be triggered by negative news on the US 'Fiscal cliff' issue or the escalation of Euro zone crises. Indian economy has seen its worst performance already and is ripe for a rebound in Fiscal 2013-14. Easing inflation, Low interest rates, a stronger Rupee and stable Commodity prices in 2013 will help revive the fortunes of the Indian economy. We may see an upgrade of our GDP growth prospects in the 2nd half of 2013. Stock market is poised to take advantage of this scenario, and give reasonable returns during 2013 as well.