12/29/2015 All you need to know about Indian stock markets in 2015

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VIVEK LAW @viveklaw

MONEY | 5-minute read | 29-04-2015

"There was a time when people ran away from a sher (tiger) and now peopleare running after shares," declares an actor in a play recently staged in thecapital. The audience claps in glee. Many seem part of the two million – andcounting– new entrants to the world of stock markets in 2014. The "RetailRush" has begun and more and more Indians now finally want to grab apiece of the India growth story pie, after having sat out for the better part ofthe last decade.

Investment

Not surprising after the stellar performance of the stock markets in 2014,driven almost entirely by the surge of hope after the spectacular victory ofNarendra Modi in May 2014. The party had begun earlier, in late 2013, onceModi had been declared BJP's PM candidate. While the broader index

All you need to know about Indian stock marketsin 2015If you want to buy a house to stay in, this year may be better than any to makethat purchase.

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sensex was up 25 per cent in 2014, many individual stocks and individualmutual fund schemes gave returns in excess of even 50 per cent. Debtmutual fund schemes, that invest in bonds, too gave hefty returns asinflation came under control and interest rates began to come down.Cocktail conversations were back to: “How much did you make?”

At the same time, two asset classes we Indians love – real estate and gold –remained moribund. So how will 2015 be? Where should one invest thisyear?

2014 was the year of hope. Expectations therefore remained high. 2015 willbe the year of reality. Returns will be muted. And expectations would have tobe reined in.

Experts say a large part of the equity returns of 2014 had to do with the rerating of India. A stable government for the first time in three decades led byModi, who came to power on the plank of injecting growth into the stalledeconomy, led to investors willing to peg a higher value to the Indian stockmarkets. Stock markets are futuristic; imminent growth in the economy iswhat led to the sharp rise in the stock markets through 2014 even thoughcorporate earnings remained sluggish and did not take off.

The bounce back of the economy has now been factored in and 2015 will seestock markets driven by a change in the fundamentals of India's companies.Experts say corporate India’s earnings will likely remain sluggish for the nextthreefour quarters and will bounce back in financial year 201617. In 2015,equity returns are likely to be in line with corporate earnings that areexpected to rise five to 15 per cent. To expect a repeat of 2014 in equities in2015 may therefore not be prudent for investors. Moreover, the stockmarkets are likely to remain volatile and may even see bursts of correction.And yet, this may well be the time to tank up on your equity portfolio andwait to see good returns over the next twothree years.

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Bonds

Bonds, that too saw strong returns far outstripping returns from bankdeposits, will be more muted in 2015. For one, inflation has come down. Andinterest rates too have been cut, and are expected to go down further by amaximum of half a per cent over the course of the year. This impending cuthas been factored in by the bond markets. Bond returns have an inverserelationship to the cut in interest rates and fall in inflation. Most of the bondreturns story has already played out. So, while returns are expected to bebetter than bank deposits, they are unlikely to beat returns by a mile.

That brings us to the asset classes that we Indians have always lovedtraditionally. The attitude towards real estate is undergoing a tectonic shift.Investors, who for long remained confined to this asset class, are doing arethink. Property prices have remained sluggish and have seen sharp falls insome pockets of the country.

Moreover, one estimate says only about 1520 per cent of real estate projectsare running on schedule, and rampant delays in project delivery arebeginning to put off investors. To top it all, the renewed push to crack downon black money has meant more and more people becoming wary ofinvesting in an asset that has for long been the haven for black money in thecountry. The absence of a regulator (the Modi government has recentlyapproved bringing in legislation) has meant a large number of unhappycustomers.

Real estate prices are unlikely to rise in 2015 in most pockets; some citiesand areas may continue to see a rise but these are few and far between. So ifyou want to buy a house to stay in, this year may be better than any to makethat purchase.

Gold too has not given inflationbeating returns for the past two years. WithIndians being the biggest buyers of gold, that is almost entirely imported, its

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WriterVIVEK LAW @viveklaw

pricing power rests in global markets. A ten per cent duty means you arestarting your investment on the back foot. Moreover, with interest rateslikely to rise in the US and economies of developed countries on the mend,experts say gold returns will remain sluggish and may not be able to beatinflation in 2015. The thumb rule most financial planners point towards is:no more than five to ten per cent of your portfolio should be in gold.

Budget

One big change that the recent Budget brought is the push towards the NPSor National Pension System. Significant tax sops have been extended to thisgovernmentowned scheme. It allows a higher allocation to equity unlikeEPF and PPF, but its returns are taxable, unlike PPF and PF – and evenunlike balanced equity mutual fund schemes, where the returns are taxfreeafter a year. The NPS is the cheapest scheme in terms of costs, but itsdistribution has been nothing short of a disaster. Given the low rates ofcommissions, banks aren’t enthused to sell the product and you may need tostruggle to buy it. Making the effort would depend on your tax bracket anddoing a returnversustaxsaving assessment with your financial planner.

It is important to see 2015 as a launch pad for your investments. The rules ofprudent financial planning remain the same. Asset allocation is paramount.So go out there and topup your insurance, fix your retirement plan, pickyour debt and equity mutual fund schemes, and then wait to ride the wave ayear or two down the line.

#Sensex, #Investment, #Indian Economy,

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The writer is editor, Business Television, TV Today.

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