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Rediff.com  » Business » Why 2015 has been unhappy for investors

Why 2015 has been unhappy for investors

By Joydeep Ghosh
December 28, 2015 09:37 IST
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A stock traderMarket experts believe investors won't be disappointed if they stick around for another 18-24 months

"Our main challenge is to hold on to our investors for at least 18-24 months.

"We feel things would be much better by then and investors would not be disappointed in equities," says the chief investment officer of a leading fund house -- a stark difference from what fund managers said a year ago.

Fund managers weren't too worried in 2014, as it was a year of positive surprises.

For the first time in half a decade, real returns from both debt and equity had turned positive.

Only hoarders of the yellow metal were seeing red.

The euphoria continued till the first quarter of the calendar year. And then, the mood changed.

Whether it was fear of a Federal Reserve rate increase, which finally happened on December 16 or delay in passage of key bills in Parliament, slowdown in China or overall weak sentiment, the stock market wasn't able to go anywhere.

Of course, most fund managers would say one year is too short for gauging the stock market or a mutual fund's performance.

Says Prashant Jain, chief information officer, HDFC Mutual Fund: "While the majority focus on a near-term and on one-year outlook for equities, it is actually far more profitable to focus on the long term."

Shankaran Naren, CIO, ICICI Prudential, quoting value investor James Montier, explains the difficulty in building a portfolio in such market conditions: "There are many times you don't know what to do.

But, you create a portfolio as though you know what to do.

Nearly 18 months ago, crude oil was at around $100 per barrel. Last year, (it was) around $55. Today, it's at $40.

No one said then that crude would will fall so sharply."

Though the Reserve Bank of India did its bit by cutting the repo rate, at which it lends to banks, by 125 basis points, bond yields did not react accordingly.

Therefore, prices of bonds did not rise as sharply as expected.

The numbers reflect the depressed sentiment.

After rising about three per cent in the first quarter, both the Sensex and the Nifty fell between one per cent and five per cent in the next three quarters.

Consumer Price Index-based inflation was at 4.28 per cent in December 2014, compared with 5.41 per cent in November this year, bringing down real returns on bank deposits (State Bank of India's one-year bank deposit rate) from 4.22 per cent to 1.84 per cent.

So, even debt investors wouldn't be overtly happy. Gold, in which investors find refuge when equities are not doing so well, continued its bad run. The yellow metal is down almost Rs 1,500 per 10 gm in the past year.

Of course, there were some bright spots but they were far and few.

For example, pharmaceutical funds, which have returned 23 per cent in the past year.

The next best were the category average returns of small-cap funds at 13 per cent. And debt funds returned between seven and 8.5 per cent.

Unhappy 2015 for investors

The good news is that fund houses haven't really seen loss of folios despite a slow 2015. Says Sunil Singhania, CIO (equities), Reliance Mutual Fund: "2015 was a flattish year in terms of absolute returns.

"Investors have matured and become smart. They have been investing in Indian equities systematically and consistently - the best strategy. They should continue with it."

Adds Naren: "One of the lessons for the investors is to continue building a portfolio through proper asset allocation in all circumstances.

"When you follow asset allocation, you will automatically allocate more to equities when these are inexpensive, and that's what you always have to do, buy more when equities at bargain prices. It's why we have been recommending equity hybrid/dynamic asset allocation funds for some time now."

What is keeping fund managers positive is that despite a slowing, Indian markets have outperformed most emerging markets.

"Our view is 2016 should be much better, as we head into a scenario where the full benefits of low crude oil prices and excellent macros play out," adds Singhania. Most believe the early part of 2016 will continue to be painful and expects muted market returns because of the lower crude prices and US rate increase.

"But, as domestic investors, we are easily among the best economies globally. The rupee is well-behaved."

The domestic economic is seeing gradual recovery. One factor I would monitor closely is signs of revival in capital expenditures through rising spending on cement, capital goods, and so on. Once this begins, we may begin to see more favourable market conditions," says Naren.

Agrees Jain: "The outlook for the economy is improving steadily with each passing day. Several initiatives of the past and those that are underway are likely to show good results in 2016.

"The outlook for Indian equities is good- given the reasonable valuations and the improvement likely in profit growth after several years of weak growth, driven by one factor or the other."

So, where do these fund managers see value? While Singhania sees value in smaller companies because he thinks that in a growing economy, smaller companies tend to do better, Naren is seeking value in large caps.

His reason: Over recent months, as there has been some selling by foreign investors in large-caps, we have seen prices correct significantly here. At the moment, mid-caps valuations have gone up considerably. The valuation gap between mid- and large-caps is at its highest level in the past year.

Relatively, there is good value in the large-cap space.

Investment experts believe that it is a good time to build a portfolio, as these are good times to buy for the longer run. "I would say, by building a good portfolio now, investors will have a very good experience over the longer term," sums up Naren.

Technology reforms that eased your Life this year

Aadhaar for filing income-tax returns

The income-tax department is making life easier for taxpayers willing to link their Aadhaar while filing returns. The Central Board of Direct Taxes, apex body of the department, introduced a column in the I-T return for 2015-16, where an e-filer can provide his Aadhaar number that will have to be authenticated on the official website of the department via a One Time Password. Earlier, despite filing a return online, taxpayers had to take printouts of the acknowledgement and send it by post to the department in Bengaluru.

Provident fund repayments linked to Aadhaar

With the Supreme Court allowing linking of provident fund with Aadhaar, the Employees' Provident Fund Organisation can go totally online. For example, settlement of accounts, an offline process, can now be done through the usage of Aadhaar. In addition, since the card has been allowed for pension schemes, the money can be deposited directly to a pensioner's account. Even if the pensioner dies, things can move rapidly if his/her nominee's details are with the department. At present, it takes three to six months for transfer of such details.

Digitisation of insurance policies

Holders wanting a digitised policy can ask the insurance company to give them one. The basic requirement is an e-insurance account with a depository or insurer. While the Insurance Regulatory and Development Authority of India has still not made it mandatory for insurance companies, there are talks that they could do so for large-ticket policies in the future. In a pilot project that was conducted in August, insurers were asked to tie-up with all the five repositories, thereby, crossing a major hurdle to facilitate digitised policies.

Image: A stock trader. Photograph: Reuters

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Joydeep Ghosh in Mumbai
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