Dr. Sanjiv Agarwal
The stock markets are highly volatile. The economic growth is stand still. No major economic reforms are taking place. The top-line and bottom-line of India Inc is vulnerable. Interest rates are not encouraging if looked at considering inflation. Bullion is volatile, unaffordable and risky too. New curbs are in place. Real estate calls for lot of diligence and requires huge investments. Above all, investible surplus is also shrinking. In such a situation, what’s the way forward? This question keeps hammering in our minds these days – those minds who do not look at bank’s fixed deposits and postal savings as an investment option where security is full but risks and rewards not commensurate with the capacity to deal with.
Look at the capital markets-our stock markets have been hovering in the range of 10-15 percent. If one considers BSE sensex, it ranges between 17K – 20K with roller coaster rides of upto 700-800 points up and down. Still, one can scout for investments by identifying and picking up stocks which have strong shock absorbent capacity. Such stocks could be blue chip companies or fundamentally strong stocks which have not fallen much. One can also pick up cheaper stocks in segments which have good prospects, once the economy recovers. Certain public sector investments also make a good choice.
It you are looking at some fixed interest options, tax free bonds can be a good bet. Bonds have fixed cash flow and finite maturity. There is no uncertainty of time and returns. Whereas tax – free bonds ensure that returns are free of tax burden, in other cases, interest would be taxed which implies that post-tax returns would be lower. To have tax-free income, there are two options-investment in tax free bonds or tax exempt investment in schemes which offer section 80C benefit in income tax. But such limit would be upto Rs. one lakh only. For tax free bonds, it would be wise to invest in bonds which have maturity closest to your time horizon. Another fixed option securities could be investment in debentures and corporate deposits. While these may offer you a relatively higher return (10-12 percent), they are relatively less safer. However, credit rating would guide you about safely and credentials of offer.
Although it is risky to invest in gold and silver now and our Government too discourages the same, it is ideal to have some bullions in portfolio – may be in the form of units of exchange traded funds. Based on demand – supply gap, it can be said that bullion prices should fetch reasonably good returns in times to come.
Real estate investments continue to be risky, costly and unaffordable, despite huge inventory pile-up across the country. One needs to be very cautious to invest in such properties keeping in mind the objective and expected time of holding such investments as liquidity is an issue in such investments. Moreover, returns depend on so many external factors which are not in the hands of builder or the investor.
Holding on to cash could also be an option to be chosen. Let the monetary policy be out next week. If may at least hint at some direction. Otherwise, the current state of economy is not going to help decide where to invest.