Equity investments trumped other asset classes in 2013.

While gold investments were the worst hit due to the crash in international prices of the metal, returns on bank fixed deposits and real estate investments too lagged the Sensex.

So, which asset class will be the outperformer in 2014? Market experts are unanimous that equity remains the best bet next calendar, too. They, however, recommend some allocation in gold.

Equity triumphs Despite concerns of a stubborn inflation and the slow growth, healthy performance by frontline IT, pharma and FMCG stocks lifted the Sensex to a new high in 2013.

After growing a robust 26 per cent in 2012, the Sensex gained 9 per cent this year. Most believe the good times will continue into next year, too.

“Given that the monsoon has been good, rural consumption should be robust. With a moderation in inflation and a pick-up in economic activity, 2014-15 looks promising,” says I. V. Subramanian, Director, Quantum AMC.

Sandeep Sikka, CEO, Reliance Capital Asset Management, concurs, saying, “a moderation in oil prices, receding concerns over global recession and the slew of reforms announced by the Government recently augur well for the equity market.”

But most experts believe that the outcome of the general elections will be critical for the rally to sustain.

“Markets may be choppy in the first half of 2014. But, eventually, it should stabilise as the focus shifts towards FY15 and FY16 performance,” explains Subramanian. According to him, global events, such as accelerated withdrawal of stimulus by the US Federal Reserve, will play a big role in determining the direction of the market.

Though defensive stocks drove the markets higher in 2013, this trend may not continue in the New Year. A recovery in the economy may improve the prospects for beaten down cyclical themes such as infrastructure. Hence, one may have to get selective with sector and stock choices.

Investors in gold received a rude shock this year as the multi-year bull-run came to an end. The exodus of investments from gold ETFs set off a rout in the first half of 2013 that was exacerbated by fears of a draining of liquidity with the Federal Reserve starting to wind down its quantitative easing programme.

Lustreless gold Gold prices in international markets declined 28 per cent this year. However, in India the fall was a mere 3 per cent because of the weak rupee.

But this weakness does not mean that gold should not form a part of a portfolio. “Irrespective of the return expectation, one can invest 10-15 per cent of one’s assets in gold, as a hedge against volatility and inflation,” says Subramanian.

Fixed deposits An investment in a bank FD at the start of 2013 would have fetched about 8 per cent on an average — a percentage point lower than the Sensex.

Real estate, which was among the best performers during the 2008 bull market, did not keep pace with the Sensex.

According to National Housing Bank, property prices in most cities, barring Jaipur, Bhubaneswar and Mumbai, either declined or rose at a rate slower than the Sensex.

“Affordability is still not high in many pockets such as Mumbai. But supply is high in these markets. This will result in a slow increase in prices,” says Apoorva Shah, Co-Head, Equities, DSP BlackRock.

While some experts expect the commercial real estate market to recover in the second half of 2014, a pick-up in demand for residential property may still be some time away.

>nalinakanthi.v@thehindu.co.in

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