Be a Tortoise

2016 turned out to be quite an ordinary year in terms of stock market returns. The large cap stocks went nowhere. In their anxiety to find alternate sweet spots, investors chased midcaps and small caps. The small caps ended up a mixed bag with several market favorites losing their gains. The midcaps did not quite deliver. Expectations ran high, but the outcome was very ordinary. The incentive to move capital into high risk parts of the market simply vanished post-demonetisation. 

So, what did 2016 turn out to be? Let us revisit the year to see what we said at the start. We expected the Indian economy to break free from the state of flux it found itself in 2015. This did not quite happen. We had predicted that the alternate assets classes would weaken. Clearly, gold and real estate lost their sheen and don’t look like they will regain their lost glory anytime soon. With US interest rates set to rise in 2017, gold will see challenges rise. With real estate and gold looking weak and interest rates rendering debt unattractive, equity looks the strongest among investment options.  

So, what should we expect in 2017? 2017 is going to be a year of challenges. It also brings along a fair bagful of uncertainty. The challenges lie in the speeding up of reforms, restoration of public sentiment post-demonetisation and in creating the right signals for future growth. These need to be addressed by the government in the budget. FII's were sellers in Indian equity through 2016. We need to create the right context for them to reverse their view. 

Markets enter a third expectant year of performance. Sustaining investment confidence becomes tougher with every passing year. This is especially pronounced when recent returns are weak and unattractive. While performance will probably improve in 2017, it is too early to say if it will quickly compensate for the two previous soft years. Returns always lump up in one or two consecutive years. Given the ordinary performance of the previous two years and the prospect of vibrant tax reforms in 2017, we should see the lumping of returns over the next two years. Over the same period, we foresee returns on real estate to be negative and gold to be muted. There are times in a market cycle when just hanging in there and sustaining investment confidence will work very well. 

2017 will be one such phase. 

Stay put.

Hold onto your conviction. 

Scale up your equity exposure. 

Re-align your asset allocation.

Learn the art of waiting. 

Profits lie in patience. 

Remember that in the proverbial long distance race, the tortoise aced the hare. This is a time to run your investing like the tortoise ran that race.