 "Themes for 2016")
It wasn't easy for either investors or consumers in 2015. On the one hand, investments, both debt and equity, did not give spectacular returns. On the other hand, the Consumer Price Index-based inflation started increasing due to a bad monsoon and shortages. This year, things might not be too different, at least in the first few months.
The chief executive of a fund house says: "We do not expect too much movement, on either side, in benchmark indices in the first quarter. Even the debt market might not see too much of change in yields."
So, what will be the key themes in 2016?
EQUITIES
Stock-picking will be key: 2015 wasn't the best year for the markets. And, many feel investors need to tread very cautiously in 2016, too. Most fund managers hold this view because they think there are a lot of uncertainties, like the Chinese crisis, which haven't played out completely. Also, mid-cap valuations have run up significantly.
Nilesh Shah, managing director (MD), Kotak Mutual Fund, believes multi-cap funds are likely to make more money than large-cap or mid-cap ones. "Stock selection will be critical in 2016. For example, banks focusing on retail will be more valuable than those heavily into corporate lending. Similarly, non-leveraged companies which will benefit from government spending and increased spending due to implementation of the Seventh Pay Commission (recommendations) should be looked at," he says.
This includes companies that can see spending from the rural sector, such as white goods manufacturers, automobiles and affordable housing. Market experts believe if there isn't a third year of a bad monsoon, rural consumption will help a lot of companies.
REAL ESTATE
Smaller houses that fit your budget: As a buyer, you might be able to purchase a house in your budget next year. It's not because developers are going for a price cut. Realtors have been maintaining rates despite the dwindling demand. To make projects more affordable, they have started cutting the size of housing units.
A S Sivaramakrishnan, head of residential services at CBRE South Asia, gives the example of Bengaluru. The average two-bedroom unit was Rs 1,300-1,400 a sq ft. In many new constructions, it has come down to Rs 950-1,100 a sq ft. This helped reduce the cost by 15-20 per cent and the metro saw a pick-up in sales.
Developers are also reducing cost by cutting on frills. Sanjay Dutt, country MD at Cushman & Wakefield, says buyers might not find developers offering luxurious Italian marble or bigger balconies in projects. "In some, we've also seen that developers cut the size of units, to offer luxurious facilities in the project while maintaining the price," he adds.
As inventory has piled up and buyers looking for near-ready houses, developers have also started focusing on the finer aspects such as painting, tiling and sanitary fittings. Earlier, realtors managed to sell their units in the under-construction stage and didn't pay attention to such things, Sivaramakrishnan says. It has started changing.
This year could also see passage of a real estate regulatory law that will make developers more accountable and transparent in functioning. The rules will apply to new and existing projects and might force developers to complete projects on time or compensate buyers for delay. The rules will also safeguard buyers against uncertainty over a project in the event of the builder backing out.
DEBT
Credit accrual funds in focus: Despite a 125-basis point rate cut by the Reserve Bank of India, bond yields did not fall so much. Debt fund returns, consequently, at 6-8.5 per cent weren't so impressive. Debt experts believe the rate cuts in 2016 will be much less. "I don't expect major rate cuts this year. Around 50 bps is the best-case scenario," adds Shah. Accordingly, he believes bond yields will not fall much. So, duration funds, which were doing very well, due to an expectation of a fall in yields, might not continue to do so.
Instead, credit accrual funds are likely to do better. These focus on earning interest income from the coupon offered by bonds. Accrual funds could also earn some returns from capital gains but these typically tend to be a small portion of their total return. Another characteristic is that these have a buy-and-hold mandate. So, an investor who goes through the portfolio has, more or less, an idea of the expected return.
On the other hand, duration fund managers have the flexibility to move into short-term or long-term instruments, depending on his/her outlook on interest rates. If the manager expects rates to fall in the near future, he will start taking exposure to longer tenure debt paper or position the portfolio at the shorter end of the curve. In duration funds, the focus is on generating a significant portion of returns from the capital appreciation that occurs when interest rates decline. Which might be a non-event this year.
INSURANCE
Separate set of network hospitals for employees: Employees covered under group health insurance schemes offered by their employers can look forward to extended coverage and better services. Though, they might have to pay additional premium. More customisation in terms of coverage and services, wider coverage for out-patient department (OPD) treatment and newer technology-based procedures, plus discounts for wellness programmes, are some changes likely in the group health insurance segment in 2016.
"Once the new guidelines on health insurance are implemented and when it becomes a separate category for accounting, companies might have to set aside more funds under the premium deficiency reserve. This means price correction will happen and premium rates will see some hardening,'' says a senior official of a public sector general insurance company.
While coverage for hospitalisation will remain about the same, it will increase for OPD treatment, agrees Sanjay Datta, chief, underwriting and claims, ICICI Lombard General Insurance. Insurers will also work with employers to offer more wellness programmes.
The rising use of digital technology will help improve employee engagement on their health matters, says Arvind Laddha, chief executive, Vantage Insurance Brokers. "Employers have been talking about wanting to do more for their employees' health. We might see them jointly working with insurance companies to offer apps or calculators to evaluate basic health parameters such as BMI, etc," he says.
Insurers might also start offering tie-ups with diagnostic centres, as diagnostic tests account for a large part of health expenses. Companies might also be able to customise the cashless hospitals network, depending on the need of and demand from employees. So, there could be a separate set of hospitals' network for group health schemes that offer the same facilities and quality of treatment but at lower rates. Coverage could expand to include complex lines of treatment such as robotics or cyberknife treatment or oral chemotherapy.
GOLD
Bond scheme to be the most popular investment tool: Most analysts expect gold investors are poised for the third annual loss this year, as the outlook for the yellow metal remains bleak. This is essentially because dollar is expected to remain robust and interest rate in the US would rise further. Also, a bearish outlook for oil could pile more pressure on gold, which is positively co-related to oil, as the metal is often seen as a hedge against oil-led inflation.
Experts say they see more individuals investing in the metal through gold bonds unlike in 2015. Bhargav Vaidya, bullion analyst and director, India Bullion & Jewellers' Association, says the investors lacked awareness about the scheme, as it was not marketed well. Also, when the government launched the scheme, it had set the bond price at Rs 2,684 a gram, whereas gold prices fell sharply as soon after to Rs 2,575 a gram, a drop of Rs 109 a gram or 4.06 per cent. This dissuaded investors.
What they didn't realise is that though the price of physical gold was down, the buyers had to pay a commission when buying it. A two-gram gold coin from State Bank of India, for example, was sold at Rs 5,642 then, excluding taxes. That translated into a per-gram cost of Rs 2,821, much higher than the price of physical gold.
Vaidya says there is still no clarity on transfer and pledging of bonds. The government is likely to permits this in 2016 before the next launch, which will attract more investors.
