No place to hide. That’s the expression that best captures what investors went through in 2008, easily the most traumatic year in recent memory for active investing!
If you held Indian stocks, they fell by 54 per cent this year. If you bought foreign stocks to ‘diversify’, your portfolio would still be down by a hefty 44 per cent (return on the MSCI World Index). Commodities, which saw a breathless rally until July, then proceeded to decimate wealth even more rapidly than stocks.
The CRB Spot Index is down 55 per cent from its July peak and 25 per cent for 2008. Gold, that ultimate safe haven, didn’t lose value; global gold pr ices gained 1 per cent. But that meagre return is disappointing for a year which had all the makings of financial Armageddon — an oil ‘crisis’, runaway inflation, an implosion of the world financial system and a sudden about-turn from global growth into recession.
But Indian investors who didn’t have stocks or equity funds in their portfolio, would be surprised at all this fuss! For, rising interest rates for most of the year pushed returns on bank deposits to 10-11 per cent, after a long hiatus.
Fixed maturity plans delivered yields of 10-11 per cent, at least until their credit quality came into question.
Gold ETFs shine
If gold didn’t shine in dollar terms, gold ETFs still did, as a depreciating rupee helped them deliver a 25 per cent return.
The sudden about-turn in interest rates also triggered a sharp rally in gilt and bond prices in the final quarter of 2008. While gilt funds closed the year with a 22 per cent gain, long term debt funds too managed 13 per cent.
Which asset classes should investors lay their bets on, for 2009? As we step into 2009, we’d suggest investors keep money handy in liquid funds, as a bottoming out of the stock markets may offer a once-in-a-lifetime opportunity to buy bluechip stocks cheap. 2009 may be a year of poor earnings growth for India Inc, leaving stocks exposed to further downside during the year.
But with valuations already at historic lows, that may be a great opportunity to buy stocks or the index itself with a 5 or 10-year view. Shying away from stocks because you may lose another 10 or 15 per cent over the next year would be extremely short-sighted. Entering stocks this year will do your long-term financial goals a world of good.
As banks chop their deposit rates, debt investors who have a risk appetite can switch a portion of their money from fixed deposits and fixed maturity plans, into market-linked options such as debt mutual funds and gilt funds, which can reap gains from falling interest rates.
Remember though, that these are subject to credit and interest rate risk. Within bond funds, sticking to those with triple-A rated exposures may be the safe course, with Corporate India hitting a difficult patch.
A portion of your portfolio (say, 10 per cent) should remain invested in Gold ETFs, as gold prices may appreciate if the dollar weakens. Gold is your insurance against equity or debt investments doing badly over the next couple of years.
Finally, one lesson from 2008 is that no forecast is sacrosanct. Therefore, do not take focussed bets on any one asset or investment, no matter how strong your conviction. Start with and stick to a fixed allocation plan between equity, debt and gold investments
No comments:
Post a Comment