Investment strategies to make 2016 count

Survival in the age of turbulence: After all the interviews, discussions and research, that has emerged as the theme of this year’s investment special. Consider that it is January 2016, and the Sensex is already down by 10 percent over last year. Bond yields are high. Real estate prices are on a downturn and gold is moving up. But none of this is surprising. With the Chinese economy in turmoil and oil prices touching new lows, deflation is palpably in the air.

Now deflation is a word that should scare the mightiest of money managers and the strongest of the economies. But ask an Indian fund manager and he will tell you that this too shall pass. He will agree that this is the lowest point of the business cycle but, also, that it will eventually turn. What matters is that today’s India is full of ideas.

Take Akhilesh Tilotia, author of The Making of India and a thematic analyst with Kotak Institutional Equities, who writes in his column that “India’s hopes hinge on its demographic dividend”. As China loses numbers in its workforce, potentially 366 million people would have joined the Indian labour pool.

But while the country talks of skilling its workforce, there is also pressure to curb greenhouse gases. Companies have to maintain minimum wages and stay profitable without damaging the environment. In that context, Navneet Munot of SBI Mutual Fund speaks of ESG (Environmental, social and governance) as a strategic imperative and a framework for analysing companies to invest in.

Meanwhile, Vijay Advani of Franklin Templeton Investments emphasises on his fund’s philosophy of value investment and staying true to investors by giving stellar returns over the last two decades. It helped: The fund house avoided investing in the housing sector during the peak of the 2007 market rally, and survived the subsequent fall of real estate companies in the equity market.  

For most Indians, real estate has always been the chosen asset class. But over the last two years, it has not performed, with some geographies even showing negative returns to the extent of 10-15 percent.

However, Gagan Banga, the managing director of Indiabulls Housing Finance, feels that real estate investing still has a lot of steam. He argues that it remains the best asset class to invest in because of the emotional satisfaction of owning your own house, among other reasons.

Fund managers, though, have largely stayed out of real estate businesses, not just because they did not understand the management, but also because of the quantum of debt these companies had on their balance sheets.

Over the years, the quality of management and extent of debt have defined the attractiveness of companies, and few understand this better than former IDFC fund manager Kenneth Andrade. Having distilled data of BSE 500 companies, he has concluded that many are reducing debt or becoming debt-free, while building assets. In a stress-ridden market, some companies will emerge winners for that reason, also the basis of our portfolio recommendations this time.

But quality debt is still good for investing, says R Sivakumar of Axis Mutual Fund. He points out that the last five years have been good for fixed income investing where the returns are higher than equity.

Different experts have employed diverse means to fight volatility. Take Venkat Subramanian of Infina Finance, who went short on financial stocks at a time when no one would bet against them, and managed to keep his fund’s head above water.

On commodities, Gopal Agrawal, CIO of Mirae Asset Management, believes that gold, energy and metals will eventually see the worm turn. However, while this is already happening with gold, the pace of revival will be slow for metals and oil. In fact, oil actually might go down to $15 a barrel before that.

We round off this issue with an ‘asset class’ which we had not included in the investment special previously. But ignoring the lure of startups for an investor is not an option today. Of course, this is limited to the very moneyed or those ready to take a higher risk. Kashyap Deorah, a serial entrepreneur and investor, warns about ideas that are me-toos, cloned from Western markets without adjusting for suitability to India.

Not so the fintech startups profiled in this section: These DIY platforms for personal finance needs are examples of inspired but homegrown businesses that are attracting investors and users, both. Their goal is to provide ideas and utility, as is ours with this special issue.