Where To Invest In 2019?
While it began with a big bang, 2018 should be a year of dis-remembrance. Everything that was not supposed to happen, happened. And stunned the markets — followed by more, in spades. A VIX meltdown in February saw one of the worst periods in investor history, with foreign investors dumping stocks left, right and centre. The Nirav Modi scam jolted the banking system, while SEBI’s mutual fund re-classification saw domestic mutual funds dump mid- and small-caps.
Additional surveillance measures, trade wars, Fed rate hikes, IL&FS defaults followed by an NBFC ALM crisis, the shock resignation of the RBI governor and the BJP’s loss in three state assemblies kept the Indian markets on tenterhooks all through, with no shortage of negative news. Yet, despite the lack of positive surprises reported, not even an earnings uptick nor capital investments, the equity markets managed to wiggle up 3.2 per cent in 2018.
Had it not been for steady inflows in equity markets through SIPs, we would perhaps be reporting a regular rout in the stock markets. In January 2018, monthly SIPs touched Rs 6,644 crore. By December, SIP flows steadily crossed Rs 8,000 crore. The year topped, with over Rs 80,000 crore of SIP funds, or $12 billion in equivalent inflows. Who needs FIIs?
Year 2019, by contrast, has been choppy so far. The broader markets have somewhat recovered after a year-end sell-off, but equity prices are not out of the woods yet, with the markets expected to be volatile in the first half of 2019.
EQUITIES: CONSOLIDATION TIME
Equities have started on a tepid note. Given that this will be an election year, equity prices will periodically go into a tailspin. Besides, this being a national election, if a clear mandate for a government at the Centre is not forthcoming, the markets could be whacked. Although markets in the past have done well after elections, investors still have to exercise “stock-market caution”.
Don’t chase upticks
The blessed mantra this year is to invest in select (few) companies where the India demographic story is rolling out. India’s swelling population requires more goods and services such as food, consumables durables, travel, etc., the sector playground of FMCG, banking, travel, consumption stock players.
Of course, since most of these stocks are now reasonably priced, investors should hold investing when prices are running up. Instead, they should concentrate on buying when their favoured stocks have dipped 10-15 per cent. Hence, make an investible list of 10-20 good stocks and, to invest, periodically look for significant drops in their prices.
Slip away from fishy counters
The other oft-repeated mantra has been to invest in quality companies. This little nugget of wisdom can perhaps be your best investment strategy in 2019, particularly in small- and mid-caps. We have seen stocks being routed last year on relatively minor issues of corporate governance.
Besides, mid- and small-cap stocks often get further walloped because of liquidity issues and lack of trading volumes. If stocks get whacked for market-related reasons, don’t miss the opportunity to pick them up. But if for corporate governance reasons, flee those counters. Spend time observing good stocks before you decide those which are worth your money. If you don’t find any fundamental and good growth reasons, avoid such counters.
Be prepared to keep stocks for the long term. If your intention is to trade in stocks, prepare for volatility. Markets will be difficult in 2019, and you may end up buying stocks too high or selling them too low.
Commit regularly through MFs
If you are comfortable with SIPs, ensure that you continue through market slides. SIPs are more effective when you can buy stocks on drops, rather than on rises. Increase your SIP outlay when stock markets are falling.
FIXED INCOME: CHOP, CHOP
The year 2018 was just about steady for fixed-income securities, though a scare arose when crude prices breached $80 sometime in May 2018, its highest since December 2014. As a result, the 10-year benchmark government yield spiked up to 7.94 per cent, driving up bond prices. Most fixed-income instruments took a beating, and returns during 2018 were not that sweet.
However, diversification played a crucial role in individual portfolios. Fixed income helped cushion the overall choppiness of individual portfolios, and well-balanced portfolios with a decent exposure to fixed-income investments rounded off 2018 on a rather good note. Nevertheless, fiscal challenges that can manifest in the first half should be watched carefully.
Low swings in short-duration funds
As fixed-income volatility could be on the rise, investors would be better off investing in short-duration debt funds. Such funds can better withstand the ups and downs in the broader market and are normally less volatile.
Grab opportunities
Last year, the liquidity crunch and the IL&FS crisis meant that several bond papers were available at distressed and higher yields. If you find similar such opportunities, particularly of good companies with comfortable debt-to-equity ratios and good cashflows, grab the opportunities with both hands.
Move to higher quality
Don’t dabble in fixed-income papers that are at the lower end of the quality curve or rated lower than AA. The fixed-income market has shown that it can be volatile, perhaps even more than equities when bond markets get liquidity-induced jitters. Chances are that high-quality paper will see less of an impact on its prices.
Stay at the short end
Conservative investors should hold to the shorter end of the yield curve. As always, longer-duration fixed-income funds with maturities of three or more years, are choppier, while interest rates and G-Sec yields could be even choppier in 2019. Keep an eye out for a pause in rate hikes in the US and India, as that would mean investors can get the opportunity to lock in higher yields.
GOLD: NOT AS SHINY
Gold has been hovering at current levels for quite some time now. Greater volatility in the rupee against the dollar did see domestic gold prices go past Rs 32,500 per 10 grams in September and October. Prices have since fallen. Gold, as always, is expected to reflect the strength of the dollar. The yellow metal fell in dollar terms, but has delivered a slightly better return of 7.5 per cent in Indian rupees.
A mere hedge
Gold always provides the classic hedge to a portfolio. In the past, investors who added gold to their portfolios have seen less sharp movements in their portfolios. Gold provides a diversification from equities and a cushion against a stronger dollar. Keeping investments to a strategic minimum such as 5-10 per cent is greatly advisable.
REAL ESTATE: GETTING IN THE BUYERS’ ZONE
Real estate has been moving sideways over the last year, but certain pockets have seen a decent drop in prices. In the next few months, real estate prices may be heading sideways and there is no indication they will rebound in 2019. Post-RERA and -GST, real estate still has to find its groove. It could be quite a while before the sector takes off.
Consider only for long term
If you are a buyer for self-consumption, you can go ahead and purchase real estate. But if you are an investor, ideally scout out opportunities, and be prepared to patiently wait out the long haul. Real estate can prove a tricky investment. It can be illiquid, which is why the need to exercise patience.
Mid-sized projects may be attractive
Investors can look for smaller commercial or housing projects, according to experts, where the deployment of capital is lower. Small-ticket projects can provide a much-needed cushion against a lengthy sideways meandering market, at the same time providing a decent rental yield on investments.
All the advice here has been written keeping in mind how the various asset classes have done, and are likely to do. Our goal is to help you make the most profit possible, with the least risk. In fact, 2019 should be the year of cutting risks and maximizing gains. Given that most of the pieces of the economic puzzle are still moving, investors should not focus too much on returns, but on consolidating one’s overall portfolio and reducing volatility with re-balancing strategies.
You will also be more successful if you have realistic expectations, rather than trying to get ahead of the market. All in all, invest on the slump, buy conservatively, and don’t let impatience overrule your selling decisions. All of these tips should help you build a better investment in 2019, and a more successful one. Happy Investing — successfully!
