November 19, 2019
Sensex managed to close at 26040 barely above 26,000 level whereas Nifty dipped below its psychological barrier and closed at 7986. We expect that demonetisation will have its impact for at least two quarters before showing real gains of this massive exercise. And the gains over long period will be worth the pain the economy and the people are going through in the short run. We are expecting Budget to be another big follow up exercise to demonetisation and we can expect lot of concessions for consumers especially middle class and incentives for businesses to be announced in the same. Market should pick up from there and second half of next fiscal should be a very good period for the markets.
G-Sec yields on its 10 year benchmark have come down by over 1.2% in current calendar year. It means prices of these securities have appreciated by over 15% in this period. If holder of this security sell it right now, s/he will have reaped over 22% annualized profit from this investment in the form of interest and capital gains. We expect repo rates to come down to 4/4.5% levels in next 2 to 4 years. Accordingly yields on bonds will also fall which will result in capital appreciation. We expect an investor will easily earn over 15% annualized returns in next 3 to 5 years by investing into such bonds.
Gold has come down by over 20% from its peak prices and is trading currently below 27,000. Demonetisation and regulations will have impact on physical demand of the gold. And with options of investing in gold through Sovereign gold bonds that assures the price matching price of physical gold and also earns interest on the investment and of mutual funds which offers returns of gold with liquidity of a financial investment, investments into gold will flow in such instruments than physical gold.
Real estate has been the worst affected investment asset class for last over three years and there seems no respite for the same in near future. This sector is seeing a lot of consolidation and slowly attaining maturity of an industry. With Real Estate Regulation Act being implemented and norms for REIT funds being revisited, we expect this sector to do better but through regulated products. This again will take at least 3 to 5 years.
Whether stock markets will go down further, nobody knows. What we believe is these are good levels and one should park about 25% of one’s investible corpus for the long term. Further they should continue investing part of their balance every time markets are down by about 7.5% from their last investments. Better would be to use systematic transfer plans of mutual funds to enter into equities at this point by staggering their investments over next six months. SIPs are the evergreen method to benefit from the volatility of the equity markets and create wealth silently. One should also invest into bonds or debt mutual funds for short to medium term.
Please do write to us for any query or to know which instruments to invest in for your objectives.