03 Jan Another Challenging Year

2019 could well be called a year of challenges – while the benchmark indices showed good returns for the calendar year (boosted by the tax cuts announced in September), the broader markets continue to wilt under poor macro-economic conditions. If we had invested with an eye on the news flow and index levels, we would have got it wrong. We would be underinvested in equities (looking at negative news and expensive valuations), disappointed by the portfolios (as portfolios and funds kept underperforming the index), seen negative returns in our debt funds (multiple credit events), stopped our SIPs (zero returns for two years) and maybe rushed to the safety of bank deposits.

However, the year has been a fairly good year for investors who have followed a disciplined approach and stuck to his/her asset allocation – allocation across the asset classes of equity and debt and diversification across the market cap segments and different strategies in debt funds.

Looking ahead, while we don’t want to hazard any guess on the likely index levels and returns expected during the year, we feel that 2020 could be as volatile as 2019. In essence we should be prepared to expect more of the same – macro economic challenges, geo political news flow, volatile and abrupt FPI flows, some stocks outperforming the rest of the markets, policy flip-flops, political re-alignments etc. What this means for us as investors is that we should stick to the simple and sustainable approach – invest as per our asset allocation, diversify across strategies and re-balance regularly. What this also means is that we will need to temper our expectations and focus on protecting the capital rather than trying to be adventurous.

We continue to recommend diversified equity funds and corporate bond funds for equity and debt allocations. One can also consider some allocation to Gold .