2010 has been a roller coaster ride for major asset classes such as equity, debt and real estate. The only exception was Gold which not only survived the wild swings on the way downward but made new highs with the spot price crossing the 18000 mark for the first time. Since the peak gold has corrected almost 6-7% and seems to be consolidating at the current levels. So what will be investment strategy for investors in 2011?
Let’s take a look at each asset class and explore the opportunities and threats.
Equity: 2009 has proven to be a golden year for the stock market with returns of around 64% till 21st December 2009. Markets have been range bound for a while now and Nifty was unable to break 5200 on the upside and it seems now that we are in a corrective phase since the last few days. There is a lot of noise of a further 20-30% correction. There is nothing impossible in the markets and there is no sane way of really figuring out whether a 20-30% correction would indeed happen. If a sharper correction does indeed happen, then it could be an exciting opportunity for people who have missed the bus. On the other hand what happens if the market corrects a little (10%) but then goes up sharply in the first couple of weeks of January or does not correct from the current levels and goes up.
Your investment strategy should be to invest regularly through SIPs or in a staggered manner and take advantage of the dips. This has been one of the best ways to make money in the Indian stock markets in the last 25 years and 2010 will be no different. At the same time if the market shoots up sharply we will rebalance your portfolio. In fact rebalancing the portfolio will be a very important theme in 2010.
Gold: Indians have always been big buyers of gold. However once the price crossed 15000 and scaled new highs, buying interest has gone down as many believe that gold prices are way too high. At the same time central banks around the world have been buying gold as if there is no tomorrow. One of the key reasons is that gold is an alternate currency that can come in extremely handy during tough times. I decided to check on the Gold Knowledge Quotient of several people with a very basic question and trust me the answers were uninspiring.
Gold is traditionally weighed in Troy Ounces (31.1035 grammes) which is 3.1 tolas. The proportion of gold in jewellery is measured on the carat (or karat) scale. The word carat comes from the carob seed, which was originally used to balance scales in Oriental bazaars. Pure gold is designated 24 carat, which compares with the "fineness" by which bar gold is defined.
Real Estate: After a correction of 20-30% or so between January and May 2009, prices have started to look up again. Builders have been able to raise funds easily after the election results in May 2009 as some FIIs were more than keen to take exposure to the real estate sector. However this is one asset class where you can see a huge bubble building up because the single factor – affordability, which determines the fate of the real estate market, has gone for a toss. No business can run on funding forever and a business must sell and generate free operating cash flows. A slowdown in home loan growth is clearly visible even at very low rates. One of the key things which a lot of builders are missing out is that people do not buy real estate markets because interest rates are low. They buy because prices are affordable and there is a clear need. Ask yourself “Would you buy something if interest rates are 0% but you are unable to afford it?” We all saw the effects of this miscalculated borrowing through the sub prime crisis. A sub prime might not happen here as a lot of real estate dealings are still in cash and also the fact that Indians have been prudent savers and buyers. However given the state of real estate prices which are artificially held up, prices must correct by 30-50% from the current levels for houses to be affordable. 2010 might not be that year as a lot of developers have paid off their debt for 2010 as well but the same cannot be said of 2011 and beyond if prices are not brought down meaningfully. Till then you will not miss much by not taking exposure in this space unless there is a mouth watering deal that comes around.
Let’s take a look at each asset class and explore the opportunities and threats.
Equity: 2009 has proven to be a golden year for the stock market with returns of around 64% till 21st December 2009. Markets have been range bound for a while now and Nifty was unable to break 5200 on the upside and it seems now that we are in a corrective phase since the last few days. There is a lot of noise of a further 20-30% correction. There is nothing impossible in the markets and there is no sane way of really figuring out whether a 20-30% correction would indeed happen. If a sharper correction does indeed happen, then it could be an exciting opportunity for people who have missed the bus. On the other hand what happens if the market corrects a little (10%) but then goes up sharply in the first couple of weeks of January or does not correct from the current levels and goes up.
Your investment strategy should be to invest regularly through SIPs or in a staggered manner and take advantage of the dips. This has been one of the best ways to make money in the Indian stock markets in the last 25 years and 2010 will be no different. At the same time if the market shoots up sharply we will rebalance your portfolio. In fact rebalancing the portfolio will be a very important theme in 2010.
Gold: Indians have always been big buyers of gold. However once the price crossed 15000 and scaled new highs, buying interest has gone down as many believe that gold prices are way too high. At the same time central banks around the world have been buying gold as if there is no tomorrow. One of the key reasons is that gold is an alternate currency that can come in extremely handy during tough times. I decided to check on the Gold Knowledge Quotient of several people with a very basic question and trust me the answers were uninspiring.
Gold is traditionally weighed in Troy Ounces (31.1035 grammes) which is 3.1 tolas. The proportion of gold in jewellery is measured on the carat (or karat) scale. The word carat comes from the carob seed, which was originally used to balance scales in Oriental bazaars. Pure gold is designated 24 carat, which compares with the "fineness" by which bar gold is defined.
Real Estate: After a correction of 20-30% or so between January and May 2009, prices have started to look up again. Builders have been able to raise funds easily after the election results in May 2009 as some FIIs were more than keen to take exposure to the real estate sector. However this is one asset class where you can see a huge bubble building up because the single factor – affordability, which determines the fate of the real estate market, has gone for a toss. No business can run on funding forever and a business must sell and generate free operating cash flows. A slowdown in home loan growth is clearly visible even at very low rates. One of the key things which a lot of builders are missing out is that people do not buy real estate markets because interest rates are low. They buy because prices are affordable and there is a clear need. Ask yourself “Would you buy something if interest rates are 0% but you are unable to afford it?” We all saw the effects of this miscalculated borrowing through the sub prime crisis. A sub prime might not happen here as a lot of real estate dealings are still in cash and also the fact that Indians have been prudent savers and buyers. However given the state of real estate prices which are artificially held up, prices must correct by 30-50% from the current levels for houses to be affordable. 2010 might not be that year as a lot of developers have paid off their debt for 2010 as well but the same cannot be said of 2011 and beyond if prices are not brought down meaningfully. Till then you will not miss much by not taking exposure in this space unless there is a mouth watering deal that comes around.
