In­vest­ing in mar­kets, gold and bank de­posits

The Pak Banker - - Front Page -

MUM­BAI

In­dian eq­ui­ties have been best per­form­ing among the BRICS, boosted by a burst of eco­nomic re­forms by the government, this year.

In the year to date, the Sen­sex in­dex has re­turned 20.05 per cent for in­vestors and the ex­pec­ta­tion is that it will do bet­ter in 2013. In a note last month, Mor­gan Stan­ley cited lower in­ter­est rates, a pick-up in in­fra­struc­ture spend­ing and sta­ble en­ergy prices as fac­tors that would con­trib­ute to a likely surge in the stock mar­ket. Last week, JP Mor­gan an­a­lysts an­nounced that In­dia is their top emerg­ing mar­ket coun­try for next year. Sean Daykin, head of in­vest­ments at Emi­rates NBD, also be­lieves that In­dia will con­tinue to do well in 2013.

Vi­rat Di­wanji, an ex­ec­u­tive vice pres­i­dent and head of Branch Bank­ing at Ko­tak Mahin­dra Bank says: “In the long term sec­tors like bank­ing and in­fra­struc­ture look promis­ing. [Those who are] risk averse can con­sider in­vest­ing in de­fen­sive sec­tors such as phar­ma­ceu­ti­cals and fast mov­ing con­sumer durables that may pro­vide sta­ble re­turns in long term.”

Funds fo­cus­ing on some of th­ese sec­tors have had high re­turns in 2012. Krishnan Ra­machan­dran, chief ex­ec­u­tive of Dubai-based Bar­jeel Geo­jit Se­cu­ri­ties, which caters to more than 40,000 non- res­i­dent In­di­ans (NRIs) , points to ICICI Pru­den­tial Bank­ing and Fi­nan­cial Ser­vices Fund (year-to-date re­turn 56%) and Re­liance Bank­ing Fund (46%), ICICI Pru­den­tial FMCG Growth (37%) and Re­liance Pharma Fund (28%). “A large num­ber of di­ver­si­fied and small and mid-cap (cap­i­tal­iza­tion) funds have also de­liv­ered any­where be­tween 20 and 40 per cent dur­ing the cur­rent year,” said Ra­machan­dran.

Given the volatil­ity of the mar­ket and the in-depth re­search re­quired to se­lect stocks, most ad­vis­ers favour in­vest­ing through mu­tual funds. Anil Rego, chief ex­ec­u­tive of Right Hori­zons, a fi­nan­cial ad­vi­sory firm, rec­om­mends us­ing a Sys­tem­atic In­vest­ment Plan (SIP) to in­vest in di­ver­si­fied funds, in­clud­ing large and mid-cap funds, as well as balanced funds to help man­age the down­side. “In the cur­rent in­ter­est rate sce­nario, one can also have short-term in­come funds to earn con­sis­tent re­turns,” added Rego. Large cap funds choices could in­clude ICICI Pru Fo­cussed Bluechip and DSP BR Top 100 and Mid­cap Funds like HDFC Mid­cap Op­por­tu­nity or IDFC Pre­mier Eq­uity.”

Balanced funds help man­age the down­side. On Hy­brid funds, Rego says, one can use a com­bi­na­tion of Balanced Funds (Re­liance RSF Balanced / HDFC Pru­dence); Balanced Dy­manic PE (FT In­dia Dy­namic PE Fund); and Mul­ti­as­set (Axis Triple Ad­van­tage).

An im­por­tant fac­tor in assess­ing funds is the re­turn beat­ing in­fla­tion. “Funds and eq­uity in­vest­ments ju­di­ciously made have time and again de­liv­ered re­turns over and above in­fla­tion. Of course there have been years when th­ese re­turns do not ma­te­ri­al­ize, but on a long- term ba­sis both funds and eq­ui­ties have de­liv­ered su­pe­rior re­turns,” said Ra­machan­dran. Di­wanji added: “For NRIs, [in­fla­tion] is less rel­e­vant since their ex­pen­di­ture and cost of liv­ing is not linked to in­fla­tion in In­dia.”

Gold funds ded­i­cated to the pre­cious metal, not phys­i­cal hold­ings, are favoured by some ad­vis­ers. “Ex­change traded funds (ETF) or a sav­ings fund are bet­ter op­tions than phys­i­cal gold,” said Anil Rego, chief ex­ec­u­tive of Right Hori­zons. “The dis­ad­van­tages of phys­i­cal gold in­clude the high trans­ac­tion costs as well as stor­age and the pos­si­bil­ity of theft. ETFs would be a lower cost op­tions for a long term in­vestor. How­ever, if one wants to go for reg­u­lar in­vest­ing, gold sav­ings funds are a good op­tion. Reg­u­lar sav­ing is sug­gested since gold prices are strong.”

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