On money trail of 2014

It is that time of the year when we need to take stock of the year that's going by and decide on what we should do in the New year.

The year 2014 has been that of change, hope and anticipation. There is a new government at the helm; brave talks and promises have been made and in general a belief that the tomorrows would be better. The stock market has bounded by over 6000 points. GDP growth is around 6%. Oil prices have fallen and inflation is at a low. The rupee though has fallen in the wake of a strong revival of the US dollar.

While I may not be as bullish as my friend Shailesh I am not skeptical. I believe the government is on the right track and it is not fair to expect miracles overnight especially after 60 years of inept management and doddering growth. The whole system has to be cleaned up and that will take a while. I agree with the Reserve Bank that it would be at least two years before we begin to show bounding growth.

Ramesh asked me, in this scenario, what he should do? Ramesh is a senior executive in an advertising company. His plans include purchasing an apartment in Mumbai. I believe that it is always a wise move to invest in real estate especially in a city such as Mumbai as prices will only go up. At this time when there are not many purchases being made, builders are offering significant discounts – ranging from 10% to 15%. One should take advantage of this. It is my opinion that prices will improve in 2015 and by the end of 2016, real estate prices would rise by over 35% (on today's prices).

I mentioned to Ramesh that I felt that the equity market continues to offer opportunity. Prices will not rise as much as they did in 2014 but that is to be expected as growth this year was fuelled by the hope of change after years of despair. In this context I'd like to quote JP Morgan the elder when asked by an acquaintance on what the market was going to do. He replied "It will fluctuate." The market will fluctuate. However, there will be solid gains to be made if one invests in strong, well managed companies and those in certain industries such as pharmaceuticals (an evergreen industry) and banking (as there will be financing to be done as the country goes onto a growth trajectory). However, with regard to banks one must be a little careful as all banks are not going to grow in the same way. Invest on those that are well managed and those that will finance infrastructure. I am skeptical on how effective the new payment banks and small banks are going to be. Towards the middle of next year engineering, construction and allied industries are also likely to do well as the economy starts to take off.

Ramesh has been contributing 10% of his basic salary for many years to the Company's provident fund and his firm has been contributing a matching amount. While it is significant, it may not be adequate for him to maintain on retirement the style he is accustomed to. I therefore suggested augmenting this for his retirement. There are several options. One can invest in the public provident fund or a mutual fund scheme that gives you Section 80C benefits now. The intent is that in fifteen or twenty years this would grow to a sizable amount, which when invested would afford an adequate income – a bridging income to add to the income from that generated by his provident fund.

Apart from this, I suggested to Ramesh that he keeps a certain amount of money liquid and in this regard I favour bank fixed deposits. It would be a good idea to invest for a few years as opposed to a year as interest rates are expected to come down next year. It is therefore prudent to lock in at a higher rate while it is still available.

While the manner an individual approaches 2015 would depend largely on his imperatives, for most of us I believe the plan I outlined for Ramesh, with some fine-tuning, would be ideal.