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Watch sectors in stocks, play safe with gold

Market experts say if 2007 was heady for investors, 2008 could see a repeat in terms of strong returns, reports Sanjeev Sinha.

business Updated: Dec 31, 2007 21:38 IST
Sanjeev Sinha

If 2007 was heady for investors, 2008 could see a repeat in terms of strong returns – but watch out for the fine print, say market experts.

Here is distilled investment wisdom for the New Year: In shares, pick sectors carefully and go stock specific. In real estate, investment trusts could deepen the game. For safety, gold still rules.

Given the roller-coaster nature of shares, the Systematic Investment Plan (SIP) in mutual funds is one sure way to tame the stock risk monster.

If interest rates dip, even bonds may return to fashion, while art remains a wild card for the classy with deep pockets.

It is difficult to repeat the 60 per cent gains that equities as an asset class gave in 2007, when a rally was aided by an initial public offer (IPO) boom in shares.

“In 2008, investors can again look at investing in the equity markets as the momentum created by infrastructure, power and media stocks is likely to continue. Fresh interest, however, is expected to emerge in banking, automobiles, hotels, sugar, logistics, integrated steel manufacturers and ferro alloys,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.

Amar Ambani, vice-president, research at India Infoline, is of the view that the Sensex will be seen at 25,000 levels in 2008.

Growth in earnings per share, deepening liquidity resulting from an inflow of funds into the market and a positive budget will be the important factors driving the markets. Infrastructure, power, and financial services will be the sectors in focus, Ambani said.

While India’s long-term structural growth story remains intact, 2008 is likely to see increased volatility in the Indian markets in the backdrop of developments in the international markets, warns Sandeep Kothari, fund manager at Fidelity Equity Fund.

He said it would be important to focus on companies with earnings visibility, quality management and execution capabilities.

Systematic investment plan (SIP) remains a safe option in mutual funds.

“Systematic investing continues to offer investors an easy as well as an effective way to participate in equity markets, as it tends to reduce the impact of volatility on investments. Investors should moderate their expectations from equity markets, given the growing global uncertainty,” says Sukumar Rajah, Chief Investment Officer – Equity at Franklin Templeton Investments, India.

Real estate is still fancied, with development projects – infrastructure, commercial or residential – being commissioned with increasing frequency.

Real estate trusts could boost retail participation in the sector long-driven by first-time home buyers.

“If Real Estate Investment trusts are allowed during the year, the retail investor could get the benefit of diversification and lower entry level to an ‘real’ asset class like real estate, which otherwise was out of reach,” says Devendra Nevgi, CEO Quantum Asset Management Company.

Gold too looks attractive on back of fears of stagnant growth coupled with inflation in the United States and a weakening US dollar.

Investment analysts believe gold would again be a safe haven to park one’s funds in 2008.

Fixed income products as an asset class, referring to bonds and other interest-rate bearing instruments, is expected to offer better risk adjusted returns, with its diversification benefits. Interest rates might have a lower bias in the second half of 2008, helping assets like bonds.

Moreover, with regulators keen on rising overseas investment limits and introducing institutional short selling, investors could look at diversifying their portfolio across countries and alternative investments, advises Rajah.