Not the time to re-jig your portfolio

RBI still unwilling to cut rates, Sensex is volatile and the outlook for gold isn't clear

For retail investors, these are confusing times. Repeatedly, they are faced with swift changes, both in India and abroad. Individuals seeking good returns are finding the conditions difficult. And, they may continue to face hurdles for some more time.

Though market experts have been saying we are heading towards a lower interest rate regime, on the ground, things haven't changed much.

The Reserve Bank of India (RBI) has cut the repo rate by 125 basis points (bps) since April 2012, but base rates of banks (to which lending rates are linked) haven't declined.

In fact, as a recent report said, since the beginning of this year, the apex bank has cut the repo rate by 75 bps, while base rates of the top five banks have declined only 5-15 bps.

There is no respite on the equity front either. Since January, the BSE Sensex has slipped 3.6 per cent.

Gold, under pressure globally, has given marginally better returns, owing to the falling rupee.

Typically, the nominal rate of return one should target from his/her portfolio is three to five per cent more than consumer price index (CPI)-based inflation.

This year's average CPI inflation of about nine per cent implies 13-15 per cent returns, something financial planner Gaurav Mashruwala believes isn't possible.

"Even if one invests in corporate bonds that offer 12-13 per cent, there would be a tax element, and this would bring down gains. So, this year, one has to live with lower real returns," he says.

Madan Sabnavis, chief economist, CARE Ratings, believes there isn't much one can do with his/her portfolio. If you are sitting on a portfolio that has debt and gold, there is no need to change it now. He says one could look at gold in the medium term.

Though gold prices fell to a 33-month low of $1,320 an ounce on Thursday, he believes there could be a few buying opportunities, as production costs for gold stand at $1,325-1,350. "Gold prices have been hovering at $1,320-1,340 for some time. If prices fall further, gold producing companies would start cutting production, and this would automatically lead to firming of prices," he says.

The depreciation in the rupee, 8.6 per cent since the beginning of the year, has helped gold record reasonable returns in India.

But overloading your portfolio with gold would only make it susceptible to sharp changes in the prices of the commodity.

As Mashruwala says, "Ideally, one should invest keeping in mind his long-term investment goals. Also, one should be ready for a few years when the portfolio wouldn't see great returns; but one can make up during good years." This year would qualify as one when one needn't seek alpha returns.