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'Investors must be prepared for 20% fall'

By Ashley Coutinho
January 28, 2022 10:39 IST
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'Largely, new demat accounts are now being opened by the younger crowd, particularly GenZ.'
'This is great news since younger investors start their journey with very little capital, so they are risking less.'

Illustration: Uttam Ghosh/Rediff.com

Investors who reposed their faith in equities in 2021 were amply rewarded, with the asset class beating all other investment categories by a wide margin.

The benchmark indices Sensex and Nifty returned 22 per cent and 24 per cent in 2021.

Returns from certain categories of equity funds -- large-cap, mid-cap, and flexi-cap -- were even higher and range between 30 per cent and 60 per cent.

In comparison, the price of MCX Gold corrected over 6 per cent year-to-date.

Residential real estate returned 1-3 per cent average annual returns across top seven cities.

Fixed deposits fetched lower than 5 per cent, while most debt funds have returned lower than 4 per cent. Post-tax and after accounting for inflation, the returns will be even lower.

Interest rates have been on a downward spiral since the outbreak of the pandemic, as the Reserve Bank of India has had to keep key policy rates low to keep the economy humming. This has impacted FD rates as well.

Gold consolidated from 2020 highs as successful vaccines and global economic recovery improved investor sentiment in the first half of 2021.

The yellow metal got back in favour in the second half amid rising inflation and repeated Covid outbreaks.

 

There has been a surge in demand for residential property in the aftermath of the pandemic, but prices haven't budged much due to excess inventory.

Commodities have seen a rally, with prices of base metals and crude oil up between 17 per cent and 93 per cent.

The vast majority of investors, though, do not invest in this segment, which is the preserve of professional traders and institutional investors.

Despite volatility and bouts of correction, Indian equities surged to record highs, driven by global liquidity and higher share of flows among emerging markets.

"2021 was a year of easy money, driven by liquidity rather than fundamentals, despite the uptick in earnings growth in some sectors. This could be a good time to review one's equity allocation and rebalance one's portfolio as required," says Vidya Bala, co-founder, PrimeInvestor.

2021 saw a surge in retail participation, particularly through direct equities. As of November 2021, India's total demat accounts stood at 77.24 million, compared to 49.8 million at the end of 2020 and 39.30 million in 2019.

"Largely, new demat accounts are now being opened by the younger crowd, particularly GenZ. This is great news since younger investors start their journey with very little capital, so they are risking less, while they have a lot of time to experiment and learn early on in their careers," says Tejas Khoday, co-founder and CEO, FYERS.

According to experts, investors had enough time on their hands to up their learning curve and learn about stock market investing during the pandemic.

New-age investors are better informed than investors who entered the market a decade ago and mostly relied on unsolicited advice from brokerage firms and unqualified investment advisors.

However, new investors that had entered the market in the past year-and-a-half have seen only one side of the market and their confidence could be misplaced.

"Bulls may not be on the rampage all the time. The current bull run calls for caution as it could tempt investors to pick stocks that are not fundamentally sound," Vinay Tonse, managing director and CEO, SBI Mutual Fund, had told Business Standard recently.

"Equity investors need to be prepared for a 20 per cent fall at any point in time to be successful as investors. If you have the ability to pick stocks and have a longer time horizon of more than five years, the equity allocation can go up to as high as 70-80 per cent. Else it's better to invest through MFs and consult an advisor," says Kartik Jhaveri, director-investments, Transcend Capital.

Investors made money in initial public offerings (IPOs) as well.

The year saw 68 IPOs hit the market, with average returns of 53 per cent and 15 offerings returning more than 100 per cent.

"While mega IPOs help widen the participation by attracting new investors to the market, it is also a cause for concern, considering the unrealistically high valuations of companies that are going public," says Khoday.

"If unchecked, it could perhaps suck out the liquidity from the secondary market and dampen the overall sentiment of retail participants in 2022."

Feature Presentation: Rajesh Alva/Rediff.com

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