A note from the founder - Jan 23
It has been a year that marks the change of economic climate in the medium term. The story of 2022 can be discussed through the below table:
The Nifty50 index, the main equity market index for India describes the market prices of the top 50 companies. As we can see, it is a flat growth of 2.7% only. For new investors among you, this can be frustrating. However, for experienced investors, this is not surprising. They know there will be long, dull periods with sudden and surging movements up or down. The broad stock market keeps fluctuating and that is the reality we all need to remember. On 01Jan22, the market was 17,600, in June it went down as low as 15,300 and then it ramps up back again to 18,200. In all of this, savvy savers and investors understand that averaging out the prices is one useful strategy rather than sitting out. For some who have surplus and appetite, we took advantage of the temporary lows and could put away lump sums expecting higher returns in future.
Next, Interest rates. The interest rate shown here is the “risk free” rate of Government of India borrowing rate of 10-year bonds. We haven't seen such a dramatic increase in interest rates in last 5 years. A rise in interest rates (almost 1%) is good for locking in safe bonds or FDs, while not so good for home loan consumers as their interest burden could increase by lakhs over the tenure of the loan. The rise of interest rates is the result of inflation. The interest rate regime around the world was kept low since 2010 by the Federal Reserve in USA, has been reversed in 2022 and the Fed may continue to increase interest rates in 2023. As we can see, this period is useful to invest in bonds or fixed income funds as these are guaranteed returns in a climate where equity may have its dull periods.
Gold showed strong growth in its price over this last year (14.3%). We have recommended to our clients to have gold in their portfolio as a hedge against uncertainty and monetary expansion. Gold continues to be trusted across the world as a safe haven asset and therefore the prices have been increasing.
To analyze property in 2022, we must rely on anecdotal data. The year finally saw the change in overall trend in real estate market across India. Property prices rose across Mumbai, Delhi NCR, Bengaluru, and other cities.
We do not have a property index in India and property prices are highly local in nature. However, we can safely say there has been an increase of 10 - 20% in residential properties in premium areas. Buying a property for self-use has been a good decision for many of our clients. The property cycle from here on is likely to continue on an upward trend for some years as this is a cyclical business.
Dollar appreciated sharply against the INR making goals linked to dollar expenses more challenging. This is a key indicator to keep track for those wanting to plan for children’s education or a property purchase. We do not expect such sharp appreciation in 2023.
Lastly, it merits checking the S&P 500 index (-20%) to see how well India equity has done compared to the “tech led boom” in US equities. Shares of marquee names have come crashing down 40-50%. This is a sober reminder that markets can get carried away in their exuberance and indeed situation will change.
The lesson from the above 5 charts is that we need an “all weather” portfolio and not rely on any one asset type. There are different economic cycles and therefore the returns will vary for different asset types. At the same time, the basic nature of each asset category does not change - its return % average over long term, liquidity and risk profile. Discipline, patience, review and re-balance is the process that works. Not to forget some common sense!
2023 seems to be an uncertain year ahead. Inflation will come under control and stock markets will recover their mojo. However, it is futile to predict and we must remain agile and disciplined in order to build wealth.