Wednesday, November 18, 2015

Investment strategy 2016 - 1


"Any idiot can face a crisis - it's day to day living that wears you out."
Anton Chekhov
(Russian, 1860-1904)
Word for the day
Indefatigable (adj)
Incapable of being tired out; not yielding to fatigue; untiring.
(Source: Dictionary.com)
Malice towards none
Madison, Allphones, Wembley.......Veni, vedi, vici.
First random thought this morning
The winter session of the Parliament will begin next week amidst a great deal of anticipation.
Sanguine are anticipating that the government will cover more than the half distance to meet the resurgent opposition in their camp in order to successfully carry out its agenda of inclusive and faster development.
Skeptics anticipate a "no show" as the stalemate continues.
Cynics are anticipating the opposition to gang up and thwart all legislative business, as the government stays put on its standpoint.

Investment strategy 2016 - 1

Indian investors are most likely entering once in five year phase when the return prospects on most asset classes are frustratingly low. Fortunately though the return of investment is not under threat as yet.
On YTD basis benchmark equity indices have given a negative return of ~4%. Given the poor earnings growth, slowdown in global flows and moderation in optimism over economic reforms, the outlook for 2016 is not very encouraging. Save for a major re-rating of Indian equities (no reason to foresee that today) the benchmark indices may return a moderate 10-12% return in 2016, with a reasonably higher degree of risk and volatility.
Despite 125bps reduction in repo rates, benchmark yields have fallen by 20-25bps this year. The best in class debt funds have given 12-13% return over past twelve months. However given that both economic growth and consumer inflation might have bottomed, the scope for a further reduction in rates from the current level may not be great.
Save for a global crisis requiring larger monetary stimulus, one should not expect the rates to fall more than 75bps from the current level. On the contrary, a material spike in consumer prices and/or pickup in investment demand may actually restrict the further cuts to much smaller proportion. This would essentially mean that the debt investment also may not offer more than 8% return in next twelve months.
As the US Fed finally begins the tightening cycle, precious metal may continue to lose their luster - making investment in gold unremunerative.
Leaving apart very high priced locations e.g., South Mumbai, and areas with huge oversupply hang, e.g., NCR and Central Mumbai, real estate prices in many areas may bottom out in next twelve months. Lower rates and stability in employment conditions may spur decent demand in LIG/MIG segment. However expecting any material rise in home prices in next twelve months would be bit unreasonable at this point in time.
So what should be the investment strategy going into 2016?
I will share my views in coming days.
 

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