The Markets are never devoid of action. The New Year has been no different so far. While the Indian market grapples with the news coming in from Global Markets and the Finance Budget, let’s quickly take a look at what has happened so far and what lies ahead for investors.
Equity Markets Outlook
Equity Markets had a phenomenal run last year. The large-cap, mid-cap and small-cap indices gave a return of 27%, 47% and 58% respectively.
The markets continued to rise rapidly in the month of January as well although markets tumbled a bit in two trading sessions post budget as a result of a global event. Markets across the world in US, Europe and Asia also saw a correction.
This is the year of LGBT. Sorry, LTCG. Just like LGBT, you better get acquainted with this acronym. The new budget imposition of a Long Term Capital Gains (LTCG) @ 10% on Equity Direct Investing and Equity Mutual Funds, above the Amount of Rs 1 lakh, while protecting the Capital gains accumulated so far (grandfather-ing), was received by the markets as being very nominal tax rate.
Way forward for Equity Investing : Positive long-term, stay-invested, don’t be greedy
- We continue to have a positive long term view for Equity Investments. With the new developments, it is even more imperative that Investors invest in Equity Asset class through Mutual Funds. Not only do they get the advantage of Fund management expertise but they can also avail tax benefits over direct equity investing through more tax efficient churning of portfolios by Mutual funds. We remain to be positive on the GST story, Infrastructure, Consumer Durables, Auto & Ancillaries, Banking and the overall India Consumption and Growth Story.
- Investors should hold on to current equity investments for the long term (3+ plus years). Continue to invest in your SIPs. Investors can mitigate their equity investing risks substantially through long term investing. Markets studies have shown that probability of incurring losses are absolutely minimized with 5+ years SIPs. Panic selling must be avoided.
- There is always more stability in Large Cap investments. Investors looking for more stability in Equity Investments can invest in Large Caps.
- Choose dividend option wisely. With a 10% tax on Equity funds, investors should choose dividend option only if they are looking for monthly income. Else, Growth option would better serve their interests.
- Investors still waiting on the sidelines would be well served in the long run to start a SIP in Equity funds. Equity as an Asset class has indeed outperformed almost all other asset classes in the long run.
Debt Markets Outlook
Last calendar year was not a very good year for Debt markets. After the phenomenal returns of 2016, the yields inched up systematically on over supply of debt paper from the government and the rising inflation on account of Crude oil etc. This hampered the Debt fund returns. Investors would have seen this impact in their returns in their portfolio.
Way Forward for Debt : lower volatility, binge on FMPs & move out of FDs
- We expect lower volatility in the debt markets for the rest of the year. We also expect the inflation to remain under the RBI targets. While rising international rates have diminished the ability of RBI to further do any rate cuts, we think that the current yield prices do factor in a couple of Repo rate hikes. In our view, the current yields look very attractive and investors looking to do lump sum investments in Debt funds to avail tax indexation benefits for 3+ plus years of holding period should consider at Debt funds.
- Fixed Maturity plans (FMPs) are a very good way to lock-in the current yields and get handsome post tax returns. Investors investing before 31st of March can avail 4 indexation benefits bringing their tax liability substantially.
- Debt Funds continue to be a better option that keeping your money in Banks FDs or Savings account. We expect both better pre-tax and post-tax returns in Debt funds than Bank FDs and Savings Account.
Outlook on other Investments — Real Estate & Gold
We continue to have Negative outlook on Real Estate and Gold. Real Estate is plagued with un-affordable prices, extremely low rental yields, rising Home loan rates, Builder Defaults, increasing government crackdown on black money and massive unsold inventory. We firmly believe that renting is much better than buying.
Similarly, our view on gold is also negative and we do not recommend having gold as an Investment for your portfolio.
To summarize, We are positive about the Long term prospects of Equity and Debt Markets in India and continue to believe that Mutual Funds are the best investment vehicles available to investors. Asset Allocation (right allocation to Equity and Debt) remains to be as important as ever and Investors can choose the right option for them keeping in mind their investment horizon and risk appetite. We at Upwardly.in are always there to assist.
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