What Investors Can Learn From A Challenging Year To Make Samvat 2079 Better


Kalpen Parekh: Markets fluctuate, having said that, since I need to articulate a little bit more to sound more intelligent, I feel that you know, interest rates and maybe I have this very simplistic framework, which does not work 25% of the times but it has worked for me 75% of the times. It doesn’t have too much intelligence in it, but the framework is as follows- in India, interest rates fluctuate between 6% to 9% in long-term 10-year bond yields. Currently, we are in the middle at 7.5%. So, you know, we are closer to the long-term averages.

But you know, there are tailwinds, because of currency, because of deficits, because of, you know, policymakers wanting to invest in global uncertainty, rates will start drifting higher, they have already drifted higher significantly, but they will continue that drift for some more time and that will make fixed income more appealing.

So, one year back when you parked money in fixed income by not being in equity for example, you know, we earned 3 and 4% return. But today, these portfolios have come up closer to 7-7.5%, closer to 7.75% also. So, the parking lot is now more conducive for money, though rates may drift a little bit higher, but the fixed income becomes, you know, reasonably meaningful after a span of two or three years.

On the other hand, while you know, equity valuations are still on the higher side, I also know we are in that cycle right now where sort of debates on valuations don’t matter anymore, something else matters. Last time has taught us that eventually gravity comes back, and common-sense rules come back. So, you know, thankfully there are many sectors of great companies which have corrected extensively in the last six to nine months, you know, debt stocks are down, healthcare stocks are down, banking stocks for last three or four years have gone away. The credit cycle has just started to pick up. So, somewhat equity is also in the middle and hence, I think, you know, some part of that froth of the market from both asset classes has moved out.

Global Equities also a lot of froth moved out, whether you look at global tech companies or Europe and Asia have been completely decimated. Emerging markets are no longer talked about, 10 years back they were like the shining star and BRICS was a popular word. Today, no one talks about them. So, there are pockets now which are emerging for one to start calibrating risk and I feel there are more opportunities now than what they were one year back.


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