As 2015 draws to a close, let’s look back. The current year has been a particularly tricky one, offering many extremely attractive investment opportunities but also dampening investors’ risk sentiments. As a result, they waited on the sidelines.

The year was very volatile and saw a host of domestic and global factors causing disruptions in almost all asset classes. Globally, the Chinese stock market had a spectacular rise and fall, causing ripples in commodity prices. The expectation of policy normalisation by the US Fed along with renewed fears of Greece exiting the EU swayed the global equity and bond markets and were the major factors adding to global risk aversion. India has been reaping good dividend from the current downturn in commodity cycle especially in oil and gold by getting the current account deficit under control. But, the year is turning out to be one with mediocre returns on mellowed expectations from the new government and weak corporate earnings.

Sober performance

So, how did asset classes perform in 2015? Sentiment improved in the primary equity markets and 2015 saw a higher number of IPOs compared with last year. This is a positive for private equity funds as they can hope for exits at better valuations. But other assets did not have much positive news.

Real estate lost its sheen. Investors in residential real estate were stuck due to rising inventory of unsold homes, marred by weak demand on account of high interest rates and unrelenting prices. As builders turned cautious, there were fewer high-yield investment opportunities from good developers this year versus 2014.

Bond investors saw muted returns, in spite of a 125-bps rate cut, due to the volatility in bond yields that capped returns for longer-duration investments. While accrual products fared a shade better, credit rating downgrades and defaults raised questions on credit quality of corporate debt issuances. The structured debt space saw fixed coupon ideas favoured over strategies offering high market participation.

Equity investors did not have a good story to tell either. Unlike in 2014, where every segment of the equity market rallied, the year 2015 rewarded only selectively. This was accentuated by the 10-14 per cent returns generated by top-of-the-line actively managed Indian equity funds versus a 6 per cent dip in domestic indices so far in 2015.

Positive outlook

What awaits us in 2016? India remains admirably resilient to global disruptions and currency fluctuations due to lesser reliance on foreign capital and lower leverage levels. We are also seeing a shift from real estate and physical gold investment to financial investments, as the real rate of return turns positive.

Corporate margins would be helped by lower commodity prices and we expect earnings growth to improve from Q3 FY16. Among sectors, the government’s focus on infrastructure should support the construction sector. Rising disposable income from the Seventh th Pay Commission can give a fillip to the consumer durables and auto sectors. Pharmaceutical companies should continue to perform.

The ecommerce start-ups in India continued to attract significant funding from global investors in 2015. We also see a huge growth spurt in service aggregator portals. We will likely see a rationalisation of the exponential valuations, as these highly-fragmented sectors face negligible margins, cash crunch and consolidation. Real estate might see a shaky recovery over the next 12-18 months, as falling rates boost demand. This would be an opportune time for real estate funds to procure land at distressed valuations. There is increasing absorption of commercial real estate by service-oriented sectors, such as IT, ITeS and BFSI in select top cities. This trend could continue and likely accelerate as the economy expands.

The domestic fixed income segment would continue to perform on easy interest rate regime, controlled deficit and enhancement of foreign investment limits in the Indian debt market. We may, however, see an interim knee-jerk reaction and a hit in global risk sentiment based on the timing of the Fed rate hike, any unforeseen reversal in commodity cycle or geopolitical events. But India still offers the best growth opportunities for investors in most assets in the long term.

The writer is MD & CEO, ASK Wealth Advisors

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