After demonetisation, asset classes like equities have seen a decline, while debt funds have gained as bond prices rallied. Bullion has also lost its sheen in global markets and India after Donald Trump’s victory. Banks have started reducing deposit rates.
So what should investors do?
Post demonetisation, many small firms are expected to face difficulties, as availability of cash has reduced. Large, organised sector players are expected to gain market share at the expense of those in the unorganised sector. Allocate more of your new money to large-cap funds. Over the longer term, equities are likely to outperform fixed-income as the positive impact of demonetisation kicks in.
Ten-year government securities are down 50 basis points, and the policy interest rate, too, is likely to soften by another 50 basis points. Investors could look at income funds to benefit from further rates cuts. They might also go for dynamic funds where the fund manager bets on interest rate changes, and on short-term funds. Bank fixed deposit rates are also coming down.
With interest rates in the US expected to go up after Trump’s win, the dollar has gained. This is negative for gold, which is not expected to outperform in the near future. Hold gold up to 8-12 per cent of your total portfolio and only for the purpose of diversification.
Property transactions have slowed after demonetisation, as buyers are waiting for prices to fall. Segments where cash was used heavily -- secondary market, luxury properties and land -- have been hit hard. Wait for some time, then negotiate best prices.