Demonetisation: Equities remain best bet; avoid exposure to gold, real estate

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Domestic equity market has witnessed a slide in recent weeks even as there is widespread expectation that governor of Reserve Bank of India, Urjit Patel, will announce a cut in repo rate in the forthcoming fifth bi-monthly Monetary Policy statement on December 7 to spur growth. Sarbajeet K Sen

The demonetisation exercise by the government has created negative impact on asset classes such as real estate and gold, with purchases slowing down in both.

Domestic equity market has witnessed a slide in recent weeks even as there is widespread expectation that governor of Reserve Bank of India, Urjit Patel, will announce a cut in repo rate in the forthcoming fifth bi-monthly Monetary Policy statement on December 7 to spur growth.

Should investors rebalance their portfolio given these trends and what are the preferred asset classes?

Leading personal finance advisors feel equities could remain the best bet in the current scenario and fresh positions can be taken amis the slide, while softening interest rates make a case for lowering of exposure to debt.

“The indicators augur well for Indian equities over a 3-4 year perspective. Investors should look to capitalise on the correction in markets and gradually increase their exposure to the equity segment,” Arvind Rao, founder, Arvind Rao & Associates, said.

Rao advises pruning debt exposure. “With interest rates on a downward trend, fixed income investments may not be the best bet. Gilt and/or bond funds will need to be closely tracked for the yield bottoming out. Fresh allocations to this sector may be avoided,” he said.

Rao says banking and logistics sector look attractive for equity investors at this time.

Anil Rego, founder and CEO, Right Horizons advises equity investors to stick to consumption-related stories and the infrastructure sector, because both segments are available at cheap valuation due to recent correction. He suggests staying away from investing in real estate sector and stocks related to real estate post demonetisation.

Rao adds gold as another asset class that should be avoided at present. “Gold for investment purposes may be avoided for the time being along with real estate.” He said.

The real estate market has come under pressure ever since the government on November 8 announced that old series of Rs 500 and Rs 1000 notes will be withdrawn in favour of new series to check black money. Deals have slowed down since a large chunk of transactions in real estate used to be made in cash.

For gold, there has been apprehensions that government would go after those who conducted purchases through black money.

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