The year appears to be closing on a positive note for the equity markets, particularly the way the second half has turned out. We saw a fair amount of upheaval in 2012 — the markets saw an upswing and, then, a trend reversal; there were significant changes on the policy front, too; and gold rallied to a new high. Factors like widening current account deficit and rising inflation have been a cause of concern, but continuous policy actions from Reserve Bank of India have been of help.
For the first half of 2012, the so-called safe-haven instruments or fixed securities were much sought after. However, after July 2012, the demand for equity investments rose, resulting in a decline in government bond yields. Also, due to high interest rates, household expenditure/spending was lower. Consumers deferred their durable goods purchases and pre-closure of loans was also widely considered. One of the best investment options was gold, proving itself to be the ‘Mr Dependable’ of 2012.
Major policy changes
The RBI effected three revisions in the Cash Reserve Ratio (CRR) to ease the liquidity position. A major movement on the policy front came in the form of foreign direct investment (FDI) as the government announced that it is opening up the domestic airline, retail and media sectors. Multinational companies such as Carrefour and Walmart can now have 51% ownership. Foreign investors can now take up to 49% ownership in domestic air carriers. In case of broadcast media, foreign media companies can increase their holding to 74% from the previous limit of 49%.
Expectations for 2013
The year 2013 could well be one of the equities. After a long haul from 2008, it seems that the markets may see a bull run, considering all the positive sentiments. There are several reasons to expect a bullish outlook — low interest rates, gradual increase in consumer spending, the continuing reform process, and so on.
With the equity markets developing a positive outlook, equity mutual funds will surely reap the benefits. Mutual funds should see fresh inflows of funds and rising assets under management (AUMs) from the existing investments and, together, that should do a whole lot of good to the industry.
Gold might see a slight consolidation if the global situation improves. However, gold will always remain a lucrative investment and should form a part of the portfolio as it acts as a hedge against equity.
Fixed income securities enjoyed a good phase between July 2011 and July 2012, after which the government yield came down to around 8% from a high of 9%. However, going forward, the returns from fixed income securities may not be as lucrative, considering the fall in interest rates and the rising stock-market. In keeping with the expectations from the equity markets, we will see transfer of funds from debt to equity.
Even with all the optimism that is slowly setting in, we still suggest that you be cautious with investments, and while designing your portfolio. The portfolio should be a mixed bag; diversification should be the route to investment planning.
In the initial phase, we might see some consolidation. However, for the next three quarters, we expect a positive current in market.
A lot will still depend on upcoming events like the Budget, the January meeting of the RBI and the ‘fiscal cliff’; some of these events lined up over a couple of weeks in January and February will be quite crucial to deciding the overall market sentiment in 2013.
* For the first half of 2012, the so-called safe-haven instruments or fixed securities were much sought after
* After July 2012, the demand for equity investments rose, resulting in a decline in government bond yields.
* Also, due to high interest rates, household expenditure/spending was lower
* The RBI effected three revisions in CRR to ease liquidity position
* Govt initiated FDI reforms in airline, retail and media
* Markets may see a bull run in the light of low interest rates, gradual increase in consumer spending and continuing reforms
* Mutual funds should see fresh inflows of funds and rising assets under management
* Gold might see a slight consolidation if the global situation improves
* Going forward, returns from fixed income securities may not be as lucrative, considering the fall in interest rates and the rising stock-market
The author is CEO and founder of Right Horizons