Return to the tried and tested

Individuals likely to opt for safer bets like fixed income, PSU stocks and gold in the new year.

The stock markets fell a little over 20 per cent in 2011. This led to investors flocking to new asset classes, diversifiers like copper, real estate, non-convertible debentures (NCDs) and so on. As the markets continue in the neutral territory in the new year, we may see investors choose some tested themes over new ones this year.

Experts say the economic environment could change rapidly this year; hence, it makes sense to play safe. There may be many good opportunities seen in the fixed income space. For instance, this calendar year kicked off with a very good response to the bonds floated by government undertakings NHAI and PFC. Last year, investors favoured bank fixed deposits due to high interest rates. "While debt will continue to interest investors in the first six months of 2012, government bonds have emerged as new favourites this year," says Rajmohan Krishnan, executive vice-president of Kotak Wealth Management.

Also, while bank fixed deposits offer between nine and 10 per cent, the net return is much less (six-seven per cent). However, the government bonds offered 8.3 and 8.2 per cent, tax free, for 15 and 10 years, respectively, for NHAI and PFC.

Industry experts see money also coming into income funds this year. Sriram Venkatasubramanian, director at Centrum Broking, has been recommending long-term income and gilt funds in the past couple of months for investors, so that they get locked in at high rates. According to mutual fund rating agency Value Research, income funds have given 8.5 per cent in past years and gilt funds have returned 6.96 per cent. You could have a horizon of 12 to 18 months for long-term debt funds.

In the equity space, investors played defensives last year. Wealth managers say cash-rich public sector stocks would be pushed this year. Reason: Government companies give decent, regular dividends. And, most of these companies are large-cap ones and, hence, much safer. However, do not expect a spectacular growth rate for six to eight months. The Bombay Stock Exchange's PSU Index lost 29 per cent in the past year.

Infrastructure is another theme that may be back in favour in the later part of this year. That is, after interest rates start moving down. Mutual fund experts believe investors may return to infrastructure funds this year. This may not be the right time to invest in the sector unless you opt for bottom-up stock picking. Infra stocks got beaten down very heavily due to the high interest rate regime and banks tightening lending to the sector. Infra funds have lost a little over 30 per cent in the past year. Remember to have a very long-term horizon for this theme, around seven to 10 years, due to the long gestation period of infra projects.

Vishal Kapoor, head-wealth management at Standard Chartered, says: "Investors will continue putting money into international funds. Especially in those economies that will start picking up from here. China might be an attractive geography this year. If the US economy starts to recover, linked funds will do well."

Many new commodities may also see investors putting in money. For instance, the National Spot Exchange may soon launch a platinum e-series, as it has been receiving enquiries for investment in platinum.

But, a large part of individual investor money may be seen flowing to gold through the exchange traded fund route. However, as gold prices have not eased in the domestic market, experts advise against allocating more than 10 per cent to this asset class. That is only for the purpose of hedging. Some could allocate towards silver via e-series.