The markets have gone up by 25% since election results were announced and Now Modi government has completed 100 days in office. There are mixed signals on the performance of the government.
Let us not discuss on the performance.
Now is it the time to invest and if so where to invest?
The broad asset classes for investment are
Equity – either direct or through mutual funds
Commodities like Gold & silver.
One of the macro economic factors worrying the government was fiscal deficit and the sovereign rating of India itself depended on how we controlled /contained our fiscal deficit.
In order to fund the deficit, the government used to borrow from the public and institutions by issuing Treasury bills /Gsec. This means that they will give the instrument and collect money. This is called repo auction.
For the first time in many years, the government is planning to conduct reverse repo auction. That is like buying the Treasury bills / Gsecs and giving money. This is possible because
a. The cash inflow to the coffers is improving by way of increase in collection of taxes
b. Some prudence in expenditure management.
c. Panned divestment to about Rs 50,000 crorre.
What does this mean. to lay man like us?
This means reduced borrowing and hence softening of interest rates. Today, SBI has reduced the interest rates in FD from 9 to 8.75% in select terms.
With inflation, not going up, and in fact is marginally lower, augurs well for the RBI rate cut sooner than we all anticipate.
Therefore, you can consider investing in the following two options depending upon your risk profie /tolerance.
a. Invest in debt / fixed income funds, like, short term funds like BIRLA medium term plan, Franklin Short term or LNT short term opportunities fund. These are all examples but check before investing. You could get a double digit return which could be substantially higher and keep a three year horizon for tax advantages 9 using indexation)
b. Be invest in equity either directly or through equity mutual funds, which will be beneficial for all industries. A large cap fund would be ideal
However care should be exercised in stock selection, if investing in direct equity.
Please take informed decision before investing. For any clarifications, please feel free to contact me.