2008 was a complete turmoil globally and 2009 a fight back towards stability and growth, with India and China leading the fight. On the last day of 2009, Indian indices once again proved why global investors can not afford to ignore India - Sensex stood at 17464, up 81% since the start of the year and Nifty at 5201, up 78%. On this positive note, at the end of an eventful decade, let’s see how assets have performed over this decade in the Indian context. For the purposes of this study, we have looked at four major asset classes that we can broadly invest in India: Equity, fixed income, gold and real estate. The objective of this study is to understand the linkages that exist and thereby be able to devise a cohesive asset allocation from a tactical and strategic view point.
The Beginning
It all began quietly in the early part of the decade as the doom cycle had just ended with the dot com bust taking equities with it. Key interest rates were higher and that was chocking credit for corporate demand for funds. While there was large inactivity in the stock markets, which had consequent impact on real estate market, bond markets was the only place which offered positive returns. The real trigger came in for bonds with a series of rate cuts (which were sustainable) and the consequent rally in bond prices. As a result the early part of this decade belonged clearly to bonds.
The Middle
2003-2007 can be called a golden period for stock markets which on the back of easy credit and foreign funds, rose to “never before seen” heights each successive year. This also propelled the real estate markets which followed stock performance during the later part of the period. So to put things in perspective, real estate followed equities which followed fixed income. Gold remained the joker of this pack doing nothing for the first half of this period.
The Finish
2008-2009, these years will remain the most talked about years – perhaps not immediately, but much later in our careers and lives when we would in most probability remember these years with awe after the next decade. We would hold intense discussions on what happened, what went wrong and how we all lived through it successfully. Much like those of us who lived through the 70’s crises and talk and reminisce about those times. However, we must remember that these periods of crises occur at least once in each person’s working life. That normally translates into one such happening in around 20-30 years by logic. That’s also precisely the reason why we look at gold within the asset for comparative purposes. Let us leave the discussion on gold a few paragraphs away.