This is because the curb on black money is likely to have an impact on interest rates and on valuations of investments in sectors like real estate
Investors are a worried lot regarding the impact of demonetization on their investments and whether they need to change their investment strategy. “As long as your investments are aligned to your goals, you need not change your investment strategy,’’ says Gaurav Mashruwala, certified financial planner (CFP). “Don’t anchor your mind to past valuations, don’t try to time the markets either; take a call as per your financial goals,’’ advises Mashruwala.
Hence, investors do need to relook at their portfolios to see whether their investments will continue to perform as in the past. This is because the curb on black money is likely to have an impact on interest rates and on valuations of investments in sectors like real estate. “The curb on black money is expected to cause some chaos in the real estate sector at least in the short to medium-term. We believe demonetization could therefore change the way retail investors view investments. From viewing cash/material investments (currency/gold/real estate) as safe haven, investors may start seeing the benefits of market-linked, inflation-beating and highly liquid investments like mutual funds,’’ points out Vidya Bala, head of mutual fund research, FundsIndia.
More importantly, “not all average people have an asset allocation based on their goals,’’ points out Yogita Dand, CFP. For instance, a sizeable section of the investing population prefers to invest in fixed deposits. Here, the demonetization policy has resulted in an influx of money in the banking system, which is expected to lead to a lower interest rate regime. “Remaining invested in fixed deposits, would not help the average person to beat inflation in the long run. He should ideally divert his fixed deposits to debt funds for a better return,’’ says Dand.
“Real estate may provide some opportunities after some chaos and price correction, while equity and equity mutual funds will provide good averaging opportunities even as short-term volatility persists. Debt funds with a duration play like dynamic bond funds will see immediate gains,’’ advises Bala.
Gold prices too will see a correction in the near future. “The prices will stablise after 6–7 months, when we see demand from the genuine buyers,’’ points out Hareesh V, research head, Geofin Comtrade. The sovereign gold bond (SGB) schemes may do better as they will be seen as safe investments.
“Sectors like real estate, cement, auto etc. will be negative performers for some time as consumption will take a hit. However, banks will perform better,’’ says Dand. But there is more to the effects of demonetization. “Weakness in the rupee will hurt Indians planning to travel abroad along with students studying abroad as they pay their fees in US dollars,’’ says Abhishek Goenka, CEO & founder, IFA GLOBAL.
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