The ultra-loose monetary policies of global central banks and abundant liquidity have ensured that equity markets continued their strong performance in 2021 as well. The Nifty50 Index was up over 20 percent last year and the rally was broad based. This was despite the fact that we had a severe second wave from mid-March and once again we are staring at a new variant of the coronavirus. In 2021, several new age companies tapped the capital markets with their IPOs and we saw record subscriptions in bulk of these issues.
Inflation had been benign for most part of 2021. Given that returns from bank FDs have fallen in line with interest rates and the low prevailing yields for high quality debt funds, HNI investors increased investments in direct debt and structured products which offered relatively attractive returns.
Equity valuations became expensive given the run up in the last eighteen months. Investors will need to be a lot more circumspect with respect to where to invest going forward. They should consider the nature of the business, quality of management and valuation while deciding which company to invest into. Long-term gains will be generated based on the individual company’s growth outlook, target market, management quality and financial stability.
Investors should stick to their asset allocation and also moderate return expectations from equities in 2022. Investing a portion of the portfolio in international equities from a diversification perspective is also recommended.
Given the prospect of a further pick-up in inflation and recovery gathering momentum, there are chances that the RBI and global central banks may raise interest rates from early 2022. Liquidity may also be reined in by the central banks. Due attention will need to be given to fixed income investment avenues so that there is a minimal mark to market impact on the portfolio while earning a reasonable yield. Products such as Real Estate Investment Trust (REITs) and Infrastructure Investment Trusts (InvITs) are likely to attract higher investor interest in such an environment. Both REITs and InvITs provide regular income in the form of dividend, interest payments and/or return of capital (amortization of debt). Investments in long/short funds which follow an absolute return strategy and seek to provide capital appreciation with low volatility may also see increasing participation.
From a wealth management industry perspective, we have seen a significant rise in the number of HNIs/UHNIs in India over the last few years driven by several factors such as the burgeoning start up ecosystem, the number of unicorns being created in our country and the increasing share of organized sectors in the economy. We expect this trend to continue for the next several years. We also believe that digitization will ensure ease of access to information and financial products which in turn will broaden the investor base and allow HNIs based in Tier II and Tier III locations to access capital markets.
The author is MD & CEO, TrustPlutus Wealth (India) Pvt Ltd
Disclaimer: The views expressed in the article above are those of the authors’ and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.