INVESMENT OPPORUNITIES

Common man in India, whenever had some money to save, used to invest in LIC, UTI. PPF, gold and real estate in that order and very few people opted for equity stock or mutual funds, that too with great caution. They are still investing in LIC and PPF. But most of the people do it to the extent of getting income tax benefit under section 80C. Whenever there were higher amounts of funds available, investment in gold and real estate were lucrative options.

However since last 5-6 years dollar is appreciating and rupee is depreciating (which is more pronounced during last 3 months). Historically, there has been inverse relationship between price of gold and that of dollar most of the time. Therefore there is no significant appreciation in gold investment. Looking to it from other angle, psychology of Indian mind gives preference to gold investment, irrespective of anticipated financial benefits. Net result is that investment in gold is remaining constant, neither increasing nor decreasing.

The most affected industry for investment is the real estate. After demonetization this business is almost collapsed. Before demonetization people of all income groups used to invest in real estate. Now this avenue doesn’t attract much investment. Rich people have no problem. They are investing in currency market and derivative markets. They can afford to employ experts for better opportunities in investments. The problem has arisen for lower and middle income group investors. Investment in real estate is no more beneficial. This has resulted in huge shift to investment in  mutual funds, particularly equity based mutual funds.

This enormous rise in investment in mutual funds could have helped Indian Economy to grow leaps and bounds. But unfortunately Industrial sector is unable to absorb this additional investment. This sector is still under the shock of demonetization and, to some extent, of introduction of GST. As the mutual funds investments are not spread horizontally for want of new projects, it is spread vertically. Most of these investments are poured to equity market and particularly large cap equity market, Sensex is gaining new heights. This is not a normal growth, but the bubble is being created, which will burst any time.

So my recommendation to all the investors is not to invest in equity stock market or equity based mutual fund. Bubble will burst and you will be great looser. When it will happen? May be a month or may be six months. Beware, collapse is certain. Mid and small cap equities already corrected (gone down) by 20%, which is a minor correction. Sensex is still rising due to surge in large cap equities. That will also have the same fate, may be even worse.

So if you have some cash to save, put it in short term deposit in bank.

Wait for the right opportunity to invest. I am here to guide you.

(The author is Professor in Financial Management and Economoics)