Midyear review 2012 and where to invest now?

July first week is a good time to look back at the annual predictions made in Dec end / Jan and course correct if required. So here I am, looking back and seeing what course corrections are required.

My 2012 predictions included the following:

• Indian economy will slow down a bit – well it has slowed down “quite a bit” and I am not too optimistic of the current government’s ability to kick start the spluttering economy. It is not that those in power do not know what is required to be done. The problem is that those in power do not have the political will to push the reforms and the unfortunate part is that the next elections is in mid 2014 – a full 2 years away.
• Europe will dampen the markets – but there will be no crash like the Lehman brothers crash in 2008 – this has held on till now – they have been limping from one problem to another – and they have avoided a crash – but the problem is still there and there are no easy solutions to Greece and Italy’s problems – they will have to improve their productivity and become world class in some industry – easy to write in a blog – but very difficult to do.
• US will limp through at 1-2% growth – well the US has done better than predicted and the economy is holding out  – they are growing at around 2% and the US Dollar is in demand as a safe haven.
• Chinese economy will slow down too – well all the emerging economies have slowed down – China, Brazil and Russia are dependent on their exports and the slowing down in EU and US is resulting in slowing down in these emerging economies.

I had predicted that in 2012, the interest rates in India will go down  and that would present an opportunity for investments in Long term debt funds – well the interest rates have not gone down to the extent that I had thought – RBI is more cautious and they are right – having said that, those who had invested in long term debt funds in Jan  have got appx 5% returns in six months – but that is below my predictions of 12% annualised.

Equity markets have also been volatile and range bound in the past six months – this was expected. I am currently more pessimistic than in Dec / Jan 2012 (actually post the Budget fiasco). But as a long term investor, I see opportunities and I am still investing with a 3-5 year timeframe. My equity portfolio in the last six months has given me a 14.25% returns where as the sensex has done 7.88% (at current sensex of 17296).

Gold has done better than my predictions and has given a return of 24% since Jan 15th – this has been primarily due to the depreciation of Indian Rupee and I believe that this will not continue for the remaining year and in 2012 the overall returns may not go beyond 30%.

Real estate is a very localised call and one cannot take a generic prediction. In Bangalore, there is a general sense of optimism and there are property launches and property expo’s as usual – the sale is happening at every segment – premium to mid level segments – the prices are going up slowly but surely. I cannot say the same about other places though, as my knowledge is limited.

So my views on the markets have not changed much in the past six months –

For investors with 1-2  year  horizon – I do not have much to recommend beyond debt – you can look at FMP’s as FMP’s are more tax efficient than normal debt investments.

For investors with 3 years plus horizon – I recommend Equities and Real estate even though over the last six months, I am tending to go more towards real estate than equities. If you cannot analyse stocks, then go for equity based MF’s  – I recommend HDFC’s family of MF’s as they have the best long term track record amongst the various MF’s – depending on your age and ability to take risk, you can look at mid cap ( HDFC Midcap opportunities fund)  or at large cap ( HDFC top 200 fund).