Indian investors have got a raw deal from equity markets for the past 5 years, except for those who had their portfolios inclined towards Pharma & Technology sectors. These 2 sectors have out- performed on the back of steep erosion in the value of Indian currency. However, broader market has given meagre returns as compared to other asset classes like Bullion and Real estate. Thankfully, this situation is on the verge of a change, and equity markets are poised to out-perform other asset classes during 2014.
Due to slowdown in economic growth coupled with a spate of stimulus packages, money has moved from productive to un-productive assets. Industrialists have been facing a resource crunch because surplus funds by savers have been diverted towards accumulation of Bullion and Real estate. Indian households saving rate has been steadily declining. Gross domestic
savings as a
proportion to GDP fell from a high of 36.8 per cent in FY08 to 30.8 per cent in
FY13, according to the Reserve Bank of India. The apex bank has blamed the sharp fall in
domestic savings on the steep decline in financial savings of households which
dropped from 11.6 per cent of GDP in FY08 to a poor 8 per cent in FY13. This situation is likely to reverse from 2014.
As per analyst reports Gold prices have declined by 50% from peak levels and are currently hovering around $1200/ ounce levels, with an expectation that they would remain soft during the rest of 2014. Prices of gold in India have been artificially inflated due to a high 10% custom duty imposed on Gold imports. Real estate prices have also peaked and would at best consolidate around the current levels for the rest of 2014. Certain real estate markets may even seek lower levels due to excess supply. Therefore, the chances of making money by investing in Bullion and Real estate during 2014 seem bleak, which is likely to discourage investors and speculators from putting more money into these asset classes.
The world economic cycle is poised to turn around in the second half of 2014, leading to revival of industrial activity. Indian economy would have to wait for the turn around till after the General elections due in April-May 2014. Our equity markets would remain volatile as the election process unfolds. There is a fair chance that you may get a 10% annual return from equity markets even from current levels, but you could get this kind of return from bank deposits without taking risk. So one must aim to get a higher return from equity investment, which you can hope to get if you invest on declines. Investors are advised to enter the markets on declines (5-10% decline from the current levels could be a good investment opportunity), for a decent 20% upside on a balanced equity portfolio.
