How asset classes fared between festivities:: Business Line,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

This Diwali, you may not be as cheery as you were last year if you, caught in the euphoria that prevailed then, put a good part of your investments into stocks. Since November last year, stock markets have tumbled into the dumps and have made only half-hearted attempts to crawl their way out.

However, if you had followed the golden rule of diversification and balanced your investments to include gold and fixed-income investments, perhaps you can put the stock market gloom behind you and attend to the festival with gusto. Here's recapping how various asset classes fared from Diwali last year till now.

POOR PERFORMERS

The three main asset classes, equity, debt and gold, put up wildly fluctuating returns, though only gold has managed to surpass inflation. The worst performer is, without doubt, equity with the bear phase of stock markets beginning just after Diwali last year.

The belief that Muhurat trading is an indicator of the market mood for the year that follows certainly didn't hold true this time. The two benchmark indices, Sensex and Nifty, hit a high of 21,108 and 6,338, respectively, during the Muhurat trading last Diwali. And there ended the bull market run that began in March 2009.

Between November 5 and October 14, the benchmark indices have declined 18.7 per cent. The BSE 500, which makes up 94 per cent of the total market capitalisation and can be considered a representative of the broader market, is down 22 per cent. The BSE Smallcap index took an even nastier spill, down 38 per cent from Diwali last year. A combination of widespread corporate governance lapses, global turmoil, stubbornly high inflation and rising interest rates quashed the positive market mood that had been in place earlier.

Many a stock has been pulverised in the past months with some, such as DB Realty, Karuturi Global, GTL and Shree Ashtavinayak, losing 85-90 per cent of their market cap between last Diwali and this. Six out of every ten stocks in the BSE 500 basket have performed worse than the broader market.

RISING INTEREST RATES

Fixed-income investments have beaten equity investments by a long shot, with the RBI doggedly trying to tame high inflation by raising rates ever so often. Banks have subsequently passed on those hikes into higher interest on deposits multiple times over the months. For instance, interest rates on fixed deposits of one to two years ranged between 6 and 8.5 per cent around Diwali last year. By dint of regular increases, interest rates have reached a range of 8-10.5 per cent. Similarly, interest rates on deposits of three to five years ranged from 7 to 8.75 per cent around this time last year and have moved up to 8 to 9.75 per cent.

Corporate fixed deposits too offered high interest rates in the past year. JK Tyres and Industries for example, offered an interest rate of 9.5 per cent on a one-year deposit in January '11. SIDBI offered an interest of 9.5 per cent for a one-year deposit in June '11.

Moving to debt mutual funds, ultra short-term funds have been the best performers racking up a one-year return of 8 per cent. Medium and long term funds have fared the worst, though beating equity by a long shot, with overall gains of 4.7 per cent. There was also choice aplenty with a number of issues of non-convertible debentures and infrastructure bonds.

GLITTERING GOLD

If you had chosen Diwali last year as an auspicious time to invest in gold, it would have been a wise decision. Up 33 per cent, gold's performance has roundly trounced other asset classes between the previous Diwali and this, while also delivering higher-than-inflation returns. The metal has been holding on to its status as a safe haven as stock markets implode around the world and economic growth is thrown into question.

Gold hit a blistering high of $1,895 an ounce in June '11, surpassing the price of even platinum which has long been the most expensive metal in jewellery. Buying an ETF such as Goldman Sachs Gold Bees, would have delivered a return of 32 per cent from November 5, 2010 to October 14, 2011.

However, hindsight is always 20/20 and whether gold will continue such a performance remains to be seen. It has already corrected significantly over the past weeks.

Demand for gold is primarily driven by jewellery unlike silver (which also saw rapid price rise), which has wide industrial applications. With high inflation, Indian gold demand which forms more than a third of global demand may taper off.