The Indian equity market has been volatile for over a year now. If you are a regular business television watcher, you may well have been flummoxed by the same set of ‘market experts’ alternately telling you that ‘we are still in a bull market’ when the indices revive temporarily and ‘this looks like the end of the bull market’ when the market slips. Do these labels really matter?
Are there really serious equity investors with the appetite for risk or simply pseudo-equity investors who cheer on senselessly and finally jump into the fray as the indices ascend, only to tuck their tails between their legs and run at the first sign of turbulence?
Sadly, most investors believe they have it in them, but when the cookie crumbles like it did post the announcement of the latest Union Budget and assorted external factors, they find the heat too much to bear and suddenly discover the merits of alternative asset classes.
And what are the alternative asset classes on offer in the Indian market?
The most popular one, without doubt is Debt which in Indian investor parlance is more or less equivalent to Fixed Deposits. With the official inflation numbers being south bound and interest rate cuts galore, the Fixed Deposit rate optics have taken a hammering. Add to that, the yearly taxation of interest on Fixed Deposits, irrespective of whether they have been redeemed or not, and the applicability of an assessee’s tax rate thereto, and the net of tax figure is more often than not, far from comforting.
Another popular asset class in India, at least till quite recently, was Realty. That this asset class with all its excesses and not so secret abundance of slush money, bore the full brunt of demonetization is well known. Artificially propped up prices here do not fool investors anymore as the vertical fall in stamp duty collections in most parts suggest that this even otherwise cumbersome to sell asset class, is struggling. The emergence of REIT’s offer some solace that a less capital intensive avenue to get a slice of this asset class will soon be available.
Among Commodities as an Asset Class, the precious metal, Gold ranks high in the Indian pecking order. However, majority of Indian ‘investors’ in gold, they are actually more ‘consumers’ of physical gold who hoard it and pass their lifetime purchases down to their next generation. As for smarter investors, they use Gold primarily as a hedge against growing equity market volatility.
Needless to say, asset allocation is a complex activity and there can be no standard fix that fits all requirements. Finally, it is Asset Allocation more than stock or fund selection or timing that could determine returns.
Ashok Kumar heads LKW-INDIA. He can be reached at ceolotus@hotmail.com