Wealth outlook: Slow, steady investing the new mantra

Despite all the uncertainty expected next year, stocks and fixed income are in a much better shape going into 2014 and could trump gold and real estate. Yet, expect a few negative surprises and pace y

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he year 2014 is likely to sustain the transition begun in 2013. The US economy is robust, investment is picking up and consumer spending is rising. Against this backdrop, developed market equities will outshine, in both the short and long term, though rising yields (notably on US Treasuries) might threaten global equities.

Indian equities will be driven by data and events. General elections will take centre-stage and be a key driver of Indian equity and fixed income markets. Though signs are evident of sustained better earnings growth, we are neutral to optimistic on Indian equities due to the ongoing reforms and a committed Reserve Bank (RBI) governor.  Recent RBI measures might help us better endure bouts of currency volatility. For Indian investors, global equities are a ‘hedge’ against rupee volatility and unfavourable local economies. (WHERE TO PUT YOUR MONEY)

Short-term fixed-income volatility, though, might continue, due to a re-emergence of inflation and a rate-increasing regime, although such pressures should fade in the long term. Government securities might have already priced in negative news regarding inflation, rate rises and supply, offering attractive valuations if interest rates should fall. The US Fed tapering, dollar strength and rising US bond yields point to a bearish outlook on gold. The only argument for an Indian gold investor could be as a currency hedge, but that, too, is better served by investing in global equities.

Vishal Kapoor,
Head, Wealth Management, Standard Chartered Bank

 

Going into 2014, India is faced with a number of issues. The first is the amount and pace of the US Federal Reserve's decision to taper. It will have an impact on all emerging markets. The second is the election year; the formation of a Third Front government would be a temporary setback. Finally,, inflation is still an issue and will determine how much and for how long the Reserve Bank will hold interest rates higher.

Fundamentally (and in terms of sentiment), the economy will do better in 2014. So, some beaten-down sectors such as capital goods, infrastructure and engineering are good to buy. Banking is an area to watch, as the new banking licences could lead to mergers and acquisitions.

Private banks and small regional private banks, which could be targets for acquisitions, are a good option because their NPAs (non-performing assets are under control.

Fixed income has been volatile. Long-term fixed income funds should be held for around two years at least. That's when investors could book profits and move to shorter-duration funds.  

Don't expect any decent returns from gold in 2014. We have been underweight since 2012. Real estate will not do well. But real estate usually lags stock markets. Hence, if the stock market goes up, real-estate gains might be evident by end-2014.

Rajesh Saluja
CEO & Managing Director, ASK Wealth Advisers

In many respects, 2013 has been memorable. The US seemed to get its act together and so did Europe, albeit with a few more hiccups. Indian equity, debt and currency markets all did a bit of somersaulting -– the rupee plunged, then recovered some lost ground, interest rates soared and created heartaches before relenting somewhat, equity markets went into the doldrums before hitting their all-time highs.

Given this backdrop, what are the prospects for 2014? Surprisingly optimistic. The global economy is moving towards a growth mode, as opposed to a mere recovery mode. Though the spectre of US Fed tapering and tightening monetary conditions loom, we expect markets to be buoyant. Investors will possibly find adequate risk premium to consider lightening their unusually high debt allocation in favour of equity allocation.

Despite the listless performance of markets over five years, financial innovation hasn’t stopped. New forms of investment management such as AIF, securitisation pools, etc, have provided investors access to international best practices. We expect these to come into their own in 2014.

Given the rupee’s sharp depreciation, Indian investors have awoken to the need for multi-currency allocation, both in real and financial investments. We expect this trend to strengthen in 2014, by way of significant allocations to international funds.

Karan Bhagat
Managing Director, IIFL Wealth Management