Wednesday, January 9, 2013

Best Investment Options for 2013


Recap of 2012:

In the midst of economic uncertainties, 2012 saw good returns from some asset classes. Stock Markets saw an increase of 25% since the beginning of the year. Gold was one of the laggards with an increase of only 8%. Interest rates fell since the start of the year, which meant that the bank fixed deposit rates fell as well. There were not as many NCD issues as in 2012 and company fixed deposit rates fell for most, though the highest interest rate offered was still 12.5% in 2012. The IPO market was subdued throughout the year and started picking up only in December with a number of good issues. Even Real estate sector was subdued.

Quarter 1:

US fiscal deficit is on a all time high and there are talks of 'cliff' situation. Also, Europe is still not fully recovered from recession. When world's top two economies are not out of the bounds completely, it will impact rest of the world as well. Typically, Stock Markets see upswing during the first month of the new year as FIIs take positions in the emerging markets. However, because of the US cliff uncertainty, Stock Markets may be volatile in the initial part of the quarter and it may move upwards or downwards rather sharply. Experienced traders may be able to take advantage of the volatile scenario but novice investors may not be able to cope up with daily changing scenario. Novice investors should choose to invest either in other asset classes or should stick with Mutual funds for the first quarter. You can also explore NPS or National Pension Scheme to build your retirement corpus. Last year, Stock Markets gave good return of 25% and this year may not be as high. The IPO market started picking up in the last month of 2012, but should be subdued in the first quarter.

Interest rates should continue to fall as RBI is expected to cut rates. Few bank fixed deposits are offering around 9.5% and few company fixed deposits are offering 12.5% interest rates. Good time to invest part of your portfolio in bank fixed deposits and some good company fixed deposits so that you are sure to get some good average return on your portfolio. There should be fewer NCD issues in the new year.

Gold saw some good rise at the start of 2012 but later got subdued due to increasing confidence in world economy. As we near the US fiscal cliff situation, Gold is expected to perform better, at least in the first quarter of 2012. Not only that, as per a new rule, gold was a "tier three asset", has been reclassified as a "tier one asset" for the purpose of reserve banks books. The Basel Committee, the body that sets the standards followed by the world’s central banks (and the commercial banks they oversee), has reclassified gold as a “tier one asset.” According to the Basel Committee’s new rule, known as “Basel III,” from start of 2013, gold will be counted at 100 percent of its market value when a bank’s assets are audited. Moreover, under Basel III, a bank’s tier one assets must rise from 4 percent to 6 percent of its total assets. This means that many banks are likely to replace substantial portions of their mortgage-backed securities and bond portfolios with gold. According to previous Basel rules, gold was a “tier three asset”, counted at only 50 percent of market value on the banks’ books.

Real estate market has been subdued in 2012 and shall continue to remain so in the first quarter of 2013, but is nevertheless a good long term investment, especially in Metros where most of the development happens. Delhi NCR will continue to see good development in 2013 as well. Real estate sector should see growth as the interest rates are also expected to fall and government is trying to assign infrastructure status to the sector so that Real estate players are able to get loans at cheaper rate.

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