Time to revisit risk

Indian investors have had an uneventful investment year in 2015. None of the asset classes did well. Gold disappointed badly.  Property seems perched dangerously on a precipice and investors now fear the worst. Equity didn’t live up to what investors expect as a reasonable risk-reward. Commodities lost money for investors. Fixed income has turned so soft that the premium over inflation is inadequate. With returns from fixed deposits trending down at a faster pace than inflation, the savings of investors are now staring at the prospect of losing purchasing power. After a year of overall weak returns, investors are wondering what their next step should be. Should they adopt a new strategy towards their investing?  The answer to this question hinges on two aspects viz asset allocation and risk appetite. Indian inflation is not going to help savers in a great way. At best we can expect them to be contained in a range. Production of essentials is not growing adequately, the incentive to produce is running low – the culprit being global agri prices. When inflation hits a higher floor, investors are left with little option but to raise their risks. So, where should investors take on more risk?

Huge supply overhang makes the wait for real estate recovery even longer and painful. With U.S fed raising interest rates, gold is set to further lose sheen. Asset allocations of investors look very lopsided. The reasons for the lopsided asset allocations don’t exist anymore. There will be further incremental preference towards equity in 2016 among Indian investors. The lack of domestic investment alternatives will further drive Indian investors towards equity. The key focus of an investor must be to raise equity exposure in a disciplined manner. 2016 promises to be a year of improved asset allocation and increased risk appetite.

“There are no sure bets in the world of investing; there is risk in everything. Be prepared for the ups and downs.” – Jim Cramer

 

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