A fresh lease of life for financial products

As gold tumbles and real estate prices crack, investments shift from physical to financial assets

The recent spurt in financial investments is a something to cheer about. Retail mutual funds folios crossed the 4 crore mark after a gap of almost two years since March 2013.

While the spurt in Sensex and returns seem to have encouraged investors, awareness initiatives by industry too have worked well. 

Crisil research data suggests that retail equity fund folios have been on a steady uptrend since March 2014 as investors have been pumping money in the category, citing uptrend in the underlying equity market. About 8.17 lakh equity folios were added in the June 2015 quarter, taking the current total to 3.16 crore. 11.82 lakh accounts were added in the preceding quarter. 

 

Retail investors seem to have been motivated by the performance of the equity markets as Sensex that was trading at 18,876 levels at start of March 2013 has given almost 50% returns to 28,000 levels now. 

On the other hand, correction in gold prices and high real estate prices have helped drive investments in financial products such as mutual funds and others. 

Analysts at Ambit say that there is a broad-based real estate pullback, with prices correcting in most tier-1 and tier-2 cities alongside sharp drops in transaction and new launch volumes. The drivers for this slowdown are a mix of supply-side factors (banks have pulled back lending to developers) and demand-side factors (the Black Money Bill has created fear amongst speculators).

On gold, a Bloomberg report says that gold has been mauled this week as commodities sank to a 13-year low. It may get a lot worse, according to Morgan Stanley, which said that under its worst-case scenario bullion may tumble to $800 an ounce. To get there requires US policy makers to start raising interest rates, another correction in China’s stock markets and a sell down of reserves by central banks, analysts including Tom Price said in a report. The metal is more likely to trade weak at about $1,050 an ounce levels in the interim.

Not surprising gold exchange traded funds (ETFs) have posted nearly 1% decline or 4,467 folio closures to end at 4.61 lakh folios following 21,742 folio closure in the June 2015 quarter. The retail segment saw closure of 4,236 folios in the latest quarter as investors shunned the category due to subdued performance by the underlying asset, says Crisil.

The trend of increasing investments in equity based funds and similar financial products can continue till  bearish trend in precious metals continues, real estate prices start correcting and crude and commodity prices continue to remain soft.