Posted by
Unknown
Managing money under Modi
Business Standard presents expert views on what changes can help improve the prospects of various asset classes
Business Standard
May 18, 2014
Last Updated at 22:50 IST
Lock into long-term fixed income assets: Ajay Bagga
As Milton Friedman said, "Inflation is taxation without legislation." Indian savers were the worst hit, with negative real returns .Investors, hence, moved to real assets to protect their real returns and the share of savings going into financial assets fell. RBI wisely moved to protect savers with sharp rate increases that have brought back investors into financial assets. We expect rates in India to stay elevated for the next six to 12 months, given the challenges facing both the new government and RBI. The fiscal deficit, threat of a poor monsoon and poor revenue inflows will not give the government much flexibility in the near term.
Investors should use this opportunity to lock into long-term fixed income assets. New products like REITs (real estate investment trusts) will also be introduced as these get approved and can be invested in. We recommend investors to lock into short-term debt mutual funds, fixed maturity plans and tax-free bonds of strong public sector units. In terms of tenure, we would recommend staying at the shorter end, in short-term debt funds, and to avoid exposure to long-term income and gilt funds as the inflationary headwinds are still strong. There is an old saying, "The bond market is smarter than the stock market." As the Indian stock markets have rallied more than 25 per cent from September 2013, the retail investor has steadfastly stayed away and even sold into the rally.
At present, we think stocks have run away in bullish sentiment, while the interest rate curve and bond yields are more conservatively measured in their reaction.
As Milton Friedman said, "Inflation is taxation without legislation." Indian savers were the worst hit, with negative real returns .Investors, hence, moved to real assets to protect their real returns and the share of savings going into financial assets fell. RBI wisely moved to protect savers with sharp rate increases that have brought back investors into financial assets. We expect rates in India to stay elevated for the next six to 12 months, given the challenges facing both the new government and RBI. The fiscal deficit, threat of a poor monsoon and poor revenue inflows will not give the government much flexibility in the near term.
Investors should use this opportunity to lock into long-term fixed income assets. New products like REITs (real estate investment trusts) will also be introduced as these get approved and can be invested in. We recommend investors to lock into short-term debt mutual funds, fixed maturity plans and tax-free bonds of strong public sector units. In terms of tenure, we would recommend staying at the shorter end, in short-term debt funds, and to avoid exposure to long-term income and gilt funds as the inflationary headwinds are still strong. There is an old saying, "The bond market is smarter than the stock market." As the Indian stock markets have rallied more than 25 per cent from September 2013, the retail investor has steadfastly stayed away and even sold into the rally.
At present, we think stocks have run away in bullish sentiment, while the interest rate curve and bond yields are more conservatively measured in their reaction.
Ajay Bagga
Market Expert
Market Expert
- Get link
- Other Apps
Comments
Post a Comment