In this time and age when all of you are inundated with news flow, there's a constant sort of worry - am I making the right move on my investments?
It is a question with no easy answers, but based on some indicators, we've come up with our outlook for the year ahead so that you can take more informed decisions.
Markets are up, interest rates are down, gold is volatile, debt funds are up one day, down the other, real estate – well, they say should firm up… It is confusing, isn’t it? And when it comes to putting away your hard earned money, a right decision could make a big difference. So, today, we'll cull out the wheat from the chaff of news flow - to give you a sense of what's our investment outlook for the rest of the year.
BIG QUESTION: What's the investment outlook for the rest of the year?
We think the hot story is equity again in India but here’s a contrarian view:
# Markets in India are up on two cues - domestic and global
# Global uptick can be seen but US bank profits are based on accounting tricks
# They have just lowered the bar to measure a toxic asset
# Goldman changed its accounting quarter period and missed out on the bad news of December
# Domestic: Cheap liquidity has led to an inflow of foreign funds which is driving a rally in domestic stock markets
# GDP growth will slow before it bounces back
# Caution is what I advice strongly - we are not in a one way bull run yet, but it does not mean that you stay out of the market
EQUITY: OUTLOOK 2009-2010
#Global equity markets appear to have found their footing
# Investors are regaining confidence and we can see new flow of investments now across the globe
# India specific news: RBI recently revised the Real GDP Growth for 2009-2010 down to 5.7 per cent from 6 per cent
# Be prepared for some pain ahead and use the opportunity to go heavy on equities
If it is equity, then where should you be investing? A painless way for all of you to invest in equities is mutual funds. So here's the list of top 5 diversified Mutual funds from our knowledge partners, Morningstar:
# DSP BlackRock Top 100 Equity Gr
# IDFC Imperial Equity Gr
# Birla Sun Life Frontline Equity Gr
# UTI Dividend Yield Gr
# HSBC Equity Gr
We like exchange traded funds also known as ETFs - because they are the cheapest way to invest in equities and carry no risk of the fund manager going wrong. So here's the list of Top 4 ETFs:
# Pru ICICI SENSEX ETF
# Nifty BeES ETF
# Junior Nifty BeES ETF
# Quantum Index Fund ETF
DEBT: OUTLOOK 2009-2010
# There are confusing signals on the debt front, low inflation is pushing interest rates down
# RBI cut rates in a surprise move last week
# While policy rates have been cut, retail and business rates need to go down
# But with the huge government borrowing programme this year, the jury is still out on the long term trend in rates
# Window of locking into high real rates in bank deposits
# Inflation expected to be 3 per cent this year, 5 year FD still at 8-9 per cent, that's a clear 3per cent safe return
We are almost at the end of the rate cut cycle.
# Balanced funds are great to get the upside of equity while still having one leg in safe bonds
# It works for those who want steady returns rather than huge volatility
Even in balanced funds there are riskier funds, for example:
# 4 star rated DSP BlackRock Balanced Gr has returned 15 per cent year on year for the last 5 years. But the past one year returns are significantly lower than its peers at -22 per cent
# FT India Balanced Gr comes in the same category with a 13 per cent year on year return over 5 years and a 4 star rating from Morningstar, but the one year return is down to -19 per cent
# ICICI Pru Moderate Gr again did well at 5 years with a 10 per cent annual return but is down 14 per cent in the past year
A fund that has done quite well both on the upside and downside is: Birla Sun Life Balance Gr. It has actually done quite well over 5 years with a 12 per cent return and the downside is 7 per cent over last year.
Real estate or a home to call your own, is the biggest single life investment most of us make. And cheaper home could translate to a difference not in thousands but in lakhs. The industry is already seeing the pain.
# Prices down between 25-30 per cent across big cities in India
# We think we will see some more correction in next 6 months
# And better still Home loan rates could soften further
So we'll advise you to start saving for that down payment and start the search. Next 12 months could be the best buy period for a home.
And if you've already identified one which you want, here's a list of loans to look at:
Best Home loans for 20 years:
# LIC housing finance: 9.5 - 9.75 per cent
# Bank of Baroda: 9.75 per cent
# HDFC: 10.5 per cent
# SBI: 10.75 per cent
GOLD: OUTLOOK 2009-2010
# Some economic turmoil still left in global economy
# Fundamentals for long term gold investment as a hedge in the portfolio, remain strong
# Take 5-10 per cent exposure in Gold ETFs
One year returns are around 19 per cent with a 1 per cent annual expense for all five gold ETFs: Kotak, Benchmark, Quantum, UTI and Reliance.
To end with: heavy on equities, light on debt and a home next year – these are must to target.