With the Equity Markets rising as though pumped by steroids, there seems to be a feeling of uneasy giddiness among many market participants, of the kind one feels while riding a roller-coaster. While the upward ride is exhilarating, it seems to be the fear of the vertical drop that could follow that is causing the unease. Are there alternative routes to soften the landing? To address these concerns, let us turn the spotlight onto the present state of some of the traditional and more popular asset classes.
The most popular asset class in India, even today remains debt. With the rapid slashing of interest rates over the last few years, the traditional avenue of Bank Fixed Deposits has taken a bit of a beating and Senior Citizens especially have borne the brunt of the low Fixed-Deposit rates on offer. With Inflation estimates rising and an interest rate hike inevitable even if deferred, this traditional investment avenue remains a troubled bastion.
Following a series of mishaps culminating in a big and messy one, the debt offerings of mutual fund houses are yet to regain full investor confidence, notwithstanding some belated risk containment measures initiated by the regulator. Some money that might have otherwise flowed into these mutual funds have found their way into some of the guaranteed return offerings of insurance companies whose tax-free tag and added insurance cover make them more attractive to investors. Then there is, of course, a plethora of traditional savings offerings from the government, albeit with investment caps that remain popular among investors.
Another popular sub-asset class in India especially, is Gold. With Gold prices plummeting to lows, following the resurgence of equities and oil prices, there is some smart money accumulating the yellow metal in its more liquid investment forms via Exchange Traded Funds (ETFs) as well as the mutual-fund route. It continues to remain a hedge alongside large equity holdings to cushion portfolios in the event of a vertical fall in equities.
The highest profile, even if somewhat minimally invested asset class in India remains Equity. The general consensus or shall we say apprehension, is that a correction is round the corner. It well may be so and those that believe it would do well to seek a switch to either safer debt instruments or equity offerings carrying lower risk by employing an inbuilt hedge mechanism. One can, of course, also always take the view that historically most corrections have almost inevitably been followed by a rebound and hence, if one has no pressing near-term need for the invested funds, stay invested.
Though non-traditional, an emerging asset class that many young people are gravitating to is Crypto-currencies. While I don’t claim expertise in Crypto-currencies, its acceptance as legal tender in some parts of the world suggests that the concept could grow, subject to regulatory approval. Given its extreme volatility though, tread carefully till then.
Ashok Kumar
Head of LKW-India. He can be reached at ceolotus@hotmail.com