Investment Mantras For New Year

As the  year comes to an end, it marks one of the best periods in India’s economic history. The period after the global crisis saw the emergence of the Indian economy as one of the fastest growing with a good banking system, with substantial capital comfort and no major delinquency problem, consumer confidence and corporate strength.

While this is true, a sharper rise in stock markets has made the formulation of an elaborate investment strategy a complex task. This is because the best returns for investors come if they invest while asset values are cheap. In India, gold and real estate have touched their all-time highs while stocks are about 10% below their all-time highs. The global scenario will play an important role in future investment strategies.

Investing in themes that have underperformed so far could be a good strategy. This is because themes are cyclical in nature and therefore investing in themes that have underperformed present greater upside and better risk adjusted return potential. For instance, mid-caps underperformed between 2006 and 2009 and then peaked in the following year.

 Infrastructure was another sector that outperformed substantially during the four years ended 2007 and then underperformed during the next two years. Despite the rise in the general market, infrastructure-driven sectors continue to trade at relatively reasonable valuations. A large part of the rally has been driven by consumption driven sectors and consumption-driven growth in India’s GDP in the last three years.

As investors look towards equity as an investment option, it is important not to ignore debt. There needs to be an increasing focus of introducing retail investors to debt funds. From the perspective of asset allocation, debt funds have not yet been entirely leveraged by retail investors. It is popularly perceived that debt mutual funds are primarily institutional driven. On the contrary, mutual funds have been working towards providing a complete product suite for investors including debt mutual funds. This is an asset class that should be leveraged in the coming year given the scenario of expected volatility. Investing is all about being systematic, ensuring discipline and keeping it simple. Following the three mantras of starting early, investing regularly and systematically following asset allocation will translate to successful investment strategies.

Source : ET