Investment Strategy 2013

2013 has started on a challenging note for retail investors with huge volatility across asset classes and confusing signals on direction of asset classes.

 The best performing asset class CY 2013 YTD, have been Debt Funds- both Gilt and Income Funds. Debt Funds have rallied this calendar year, with the new 10 year G-Sec hitting a 3 ½ year low. The debt funds performance were positively impacted by 75 bps rate cuts from RBI this calendar year and the sharp fall in WPI Inflation, (which is at a 41 month low). We remain positive on debt markets, as we feel RBI may take further monetary actions for reviving growth.

 Indian Equities have traded in a range throughout this calendar year, but with heighted volatility. The Sensex did hit a 30 month high in May, only to retreat back to flat returns YTD, on concerns of depreciating Rupee. The Rupee has fallen to an eleven month low against the dollar. FII flows have been very strong this calendar year; however they have been negated by strong outflows from DIIs. We see Sentiments, Fundamentals and Liquidity to be much better in 2013 compared to last year, which can propel the Indian Equity Markets. We feel investors with 3-5 years’ time horizon are likely to be richly rewarded.

 2013 has started on a difficult note for commodities substantially under performing most other asset classes. Commodities in general remain the asset class most linked to global growth momentum, with the under performance a direct result of the disappointing growth number across countries this year. Among precious metals, Gold had seen a 17% correction YTD and if the trend continues we shall witness the first year of negative returns from Gold, in more than a decade. We remain more positive on equities compared to gold.

 We have a positive view for China equity markets in 2013 from macro, earnings growth, liquidity and valuation perspectives. The market looks attractive, considering the undemanding valuations it is trading at. We feel markets at these valuations are discounting all the negative news and investors with 3-5 years time horizon is likely to be rewarded.

 Through this newsletter we share our outlook on the economy followed by equity, debt and international asset classes. Click on the respective tabs for more details.