Have A Problem Of Too Much Money? Here Are Tested Frameworks
All of us have different situations in life. The question as always is what opportunities suit us and where some progress is achievable. This is more important as in the current situation the world is Return of Capital is more important than return on capital.
People on the professional side are relatively less confused for choice as apart from the usual expenditure the rest would go in a mix of fixed income and growth assets. For an entrepreneur, the opportunity and the way ahead at a policy level are more crucial. Therefore many have parked in liquid funds or low volatility strategies or are simply reducing debt.
2020 has come upon us. India’s growth phase as per most economists and international institutions like IMF is pegged at a minimum of 6% GDP growth per annum over the next ten years. This translates into growth at a nominal GDP of 10-12% per annum. This translates in a 3-4x growth over a period of ten years. Therefore at an index level, one is not likely to be surprised to see 3 times of the current index levels after ten years.
Let us explore strategies relevant to protect and grow capital over the longer term. The long term is made up of shorter journeys, some slightly longer and some coinciding with major life goals like education and marriage of children, your financial liberty if you are an entrepreneur or a retirement kitty if one is a professional.
Let us understand from multiple perspectives i.e international & India based factors how the next year is likely to shape up
International
The key issues which are concerning the growth of trade in the world are the US-China Trade war, Separation of Brexit which is more likely given the victory of the Conservatives. As per our understanding, the first pipe of peace is a good sign however one needs to see how the US & China get along over the course of the next year.
A critical event is the US Elections. If the current administration continues the recovery of the world economy is likely to be slower as that would give the current administration confidence in its mandate. If the Democrats come into power then recovery is likely to be faster for the rest of the world as Trade issues may get sorted faster.
Brexit would create a higher likelihood of a European slowdown. If China recovers if the trade deal with the US is favourable then a gradual pullback in Commodity prices may be there, however as the world is not in a situation where Greenfield assets are being created in a big way as a trend and the management thinking at most companies is to optimize current capacity commodity-based countries are likely to see a marginal uptrend economically.
India based factors
The slowdown in GDP has been on account of multiple factors.
The major ones namely are
Limited policy stimulus to key sectors like Real Estate which have a multiplier effect
Non-adaptation of new business models by Indian Businessmen as this is a digital world
As demand is there but digital more jobs are not needed to process the same amount of work and even an increase in workload in many cases at an enterprise-level does not result in more jobs.
The slow recovery process from the promoters who have not been able to pay their dues.IBC is improving and therefore we are likely to see some lending increasing over a period of 6-12 months going forward.
In our country, the rural economy does depend on the Rain Gods. This is an issue till irrigation touches 60 per cent of agricultural land in usage. A good monsoon can increase 2 wheeler sales as they are the go-to vehicle for local travel in major parts of the country.
Interest rates are at a low on account of increased coordination between the RBI the Finance Ministry. The rate cuts are being seen in Retail loans than incorporate loans as of now. Major issues like IL&FS start getting sorted at a Corporate level lending will resume to the NBFC’s and that in turn would help lift the animal spirits over the medium term.
The question likely to pop up in your mind is “How do I structure a model portfolio?
It depends on whether you are in the growth stage or in the income stage
A growth-stage portfolio is likely to be
Debt – 20 per cent
Equity- 60 per cent (This could include exposure to International equity through Index funds)
Alternates – 20 per cent
An income generation stage portfolio looks like
Debt – 50 per cent
Equity – 30 per cent
Alternates – 20 per cent
More specific strategies depend upon Individual portfolios and risk-taking temperament.
In this coming New Year Prudence in temperament is a virtue which we cherish as a Market Observer. May the force help you to shape your choices well.
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