Equity, debt, gold, or real estate – which one to bet for in 2024? Keep this in mind while tweaking your asset mix, ET BFSI

Equity, debt, gold or real estate which asset classes are likely to outperform in 2024, is a question most investors are looking for an answer. This becomes important for investors to give a final shape to their asset mix decision so that their investment portfolio not only delivers good return but also becomes secure enough to deal with any volatility or adverse market movements. We tell you how these different asset classes are likely to perform in 2024 and how you should adjust your investment exposure to these assets.

Why equities will remain most preferred asset class for many
The equity market is known to deliver one of the highest returns among various asset classes in the long run and this is not going to change much in 2024. “Looking ahead to 2024, the optimistic outlook is grounded in improving global and domestic landscapes, with factors such as softened inflation, early adjustments in monetary policy rates, and reduced crude oil prices contributing to resilience,” says Girirajan Murugan, CEO, FundsIndia.

2024 could be a special year for India as it has come out as a much more resilient economy after the successful handling of the coronavirus pandemic and war-related global disruptions. “A global rebalancing of trades works favourably for India, positioning the country to gain global market share across various industries. Opportunities span a wide spectrum, with a particular focus on the large manufacturing footprint and the resilient services industry, both of which are globally competitive,” says Kenneth Andrade Founder, Director – Old Bridge Capital Management & CIO – Old Bridge Asset Management.Also Read: Higher Bank FD interest rates may fall by 50 bps or more in 2024; You have this much time to invest

With growth-oriented policies delivering on ground, India is expected to be the preferred choice of equity investors. “India’s economic forecast is particularly striking. With a projected growth rate of 6.5-7%, India dramatically outshines the global forecast of 2.7%. This growth trajectory can be attributed to India’s commendable governmental transparency, stability, and ever-evolving investment-friendly policies. This confluence of factors has significantly elevated India’s stature as an enticing investment destination on the global stage,” says Aryaman Vir, CEO, WiseX.

Which sector or equity segment will outshine in 2024?
With the government’s relentless focus on manufacturing, the sector is likely to gain more prominence in 2024. “Anticipating positive market dynamics in the first half of 2024, the outlook is not tied exclusively to specific electoral events but rather driven by the ongoing investment cycle and manufacturing resurgence,” says Murugan.

The interest rate cut cycle, which is expected to start in around mid of the year 2024, is likely to work well for the Indian equity market. “Global expectations of interest rate cuts in 2024 may result in increased FII inflows, benefiting sectors like manufacturing, IT, banking, AMC, automobiles, insurance, real estate, Defence, Railway Infra, and Digital Transformation,” says Murugan.

Also Read: Stocks to buy now: 9 companies that are likely to double their earnings in next three years

While smaller companies are attractive to new investors, the larger ones will also be in great demand. “Interestingly, there is a noticeable disparity in investor preferences, with domestic investors favouring smaller names, while international investors are leaning towards larger and indexed weights. Mega caps are now gaining traction as valuations align in their favour,” says Andrade.

Some sectors are likely to outshine others in 20024. “Looking at the sectoral performances this year, sectors like defence, realty, autos, PSEs, and pharma have been major outperformers while new-age businesses have been a dark horse,” says Singh. “Sectors like financials and IT and themes such as manufacturing, PSEs, and healthcare could be rewarding during 2024,” adds Singh.

Wealth multiplier impact of different asset classes

Returns as on 30-Nov-2023
Source: MFI, Gold.org, NHB, Investing.com, FundsIndia Research. S&P 500 TR and Gold returns are adjusted for USD-INR Exchange Rate.
Debt*: Index calibrated based on the Debt Schemes -Aditya Birla SL Low Duration Fund, HDFC Low Duration Fund, Aditya Birla SL Corporate Bond Fund. Real Estate Returns are calculated based on NHB Residex (returns for the period Dec-02 to Dec-08 are considered for 5 cities and for 15 cities post Dec-08 till Jun-2023).

Equity investors will have to take volatility in their stride in 2024
While 2024 is expected to be an overall good year for equity, however, it will also have its fair share of short-term volatility. “While there is a lot of buzz about Equity returns in CY2023, we have to keep in mind that CY2022 was not a good year for Equity. So effectively, in the last 2 years i.e. CY2022 and 2023 BSE Sensex returns will be around 11.5% p.a.,” says Chetanwala.

Valuation running ahead of time and over-enthusiasm of investors often lead to corrections. “The Market Cap to GDP ratio has reached levels, which signal potential overvaluation and suggesting caution as the market may have priced itself well ahead of the curve,” says Andrade.

Diversification is the key for investors while dealing with volatility. “Despite expected market volatility in 2024, retail investors are advised to focus on diversifying portfolios across strong mid to large-cap sectors while avoiding high-debt companies,” says Murugan.

Gold – Will 2024 be the year when the yellow metal will glitter more?
FundsIndia’s December report Wealth Conversations states that over the long term (10-15 years), gold has provided returns above inflation. It outlines that the long-term return expectation from gold is 2-4% above inflation, however, with a caution that gold also goes through extended interim periods of subdued returns.

Gold not only works as a good hedge against inflation but also helps you diversify into an asset class which works well in times of uncertainty. “Geo-political risks, currency wars and worldwide high inflation make a strong case for investing in gold. While the returns of this asset class might not be the highest it offers safety which no other asset class can. It would be a good decision to always have a percentage of your overall portfolio allocation towards gold to balance out risks,” says Harsh Gahlaut, CEO, FinEdge.

The strong demand from central banks is unlikely to come down significantly in 2024. “The de-dollarisation trend to diversify away from the US dollar, fuelled further by ongoing geopolitical risks, will keep pressure on the dollar and help gold. We expect strong central bank gold demand to act as a soft support for gold prices as it did in 2023,” says Mehta.

India and China are the biggest buyers of gold, and it is likely to continue in 2024. “Physical demand from leading gold buyers India and China is expected to be healthy, keeping prices well supported. India’s economic robustness will fuel consumption demand whereas China’s economic uncertainty should drive up investment demand,” says Mehta.

While everyone agrees that one should have a part of their investment portfolio in gold, however, the extent of exposure will depend upon your other asset exposure, risk appetite and investment objectives. “Gold has to be seen from an asset allocation and diversification perspective. Going overweight on gold can often be counterproductive. The best thing to do with gold investment is to keep it aligned with the planned asset allocation which may vary from 5 to 10% depending on investor’s comfort on gold,” says Chetanwala.

Real estate – The easy way to give your portfolio the real exposure
After many years of sluggish return, the scenario has gradually improved for the real estate sector in India. Physical real estate investment comes with a barrier of very high investment which works with only a select category of investors who have a big amount to invest. “Real estate as an investment is complicated and illiquid. Diversification requires a large investment amount and does not come without risks. These are the things one needs to consider before investing,” says Gahlaut.

However, off late Indian investors have started getting options to go for fractional investment. “With Real Estate at the forefront, India is poised to command a significant share of the anticipated $1.2 trillion global real estate investment, especially given the Asia Pacific region’s impressive 35% contribution (as per Colliers’ 2024 Global Investment Outlook). This optimism will be further supplemented by SEBI’s ground-breaking decision to regularize fractional ownership in India by bringing SM REITs structure. This will really help in democratizing access to the blooming commercial real estate market,” says Vir.

Debt Investment – How to get an edge on your debt portfolio
The year 2024 is expected to be a better year for debt investment. “We are exiting 2023 on a positive note with RBI upping FY24 GDP guidance by 50bps to 7% and US Fed suggesting at least three rate cuts in 2024,” says Jaspreet Singh Arora, CIO, Research & Ranking.

Any cut in interest rate works well for bond investors as the bond prices go up. “Robust consumption should ensure that the Indian economy should grow at 6% or higher in FY25. Importantly, average inflation will trend towards 5% in the same period. This is in stark contrast to the average inflation of 6% in the last two years. This should raise prospects of rate cuts in the second half of FY25 in our view and may put long-term (10+Y) Indian Government Bonds (IGB) in the sweet spot. Investors in IGBs are best placed to benefit from the easing interest rate cycle,” says Dhawal Dalal, Chief Investment Officer – Fixed Income, Edelweiss Asset Management.

If you are a bond investor, you should have your investment strategy ready to gain from the easing interest rate cycle. “We expect 10-year IGB to trend towards 6.75% by March 2025 from current level of 7.18% (as on 29th December, source RBI) assuming normal monsoon, growth momentum in the economy and initiation of sharp rate cut cycle in the DM in CY2024. Investors, hence, are advised to gradually increase duration in the fixed income portfolios using liquid IGBs since they are first to react. Bond prices rise when yields fall and vice versa. The higher the duration of the bond, the greater is the price impact. IGBs allow investors to add duration in the portfolio without any credit risk,” says Dalal.

However, corporate bonds may witness a rise in the yield on short-end bonds. “Short-end bond yields (1-3 Years) on corporate bonds may harden a bit as more corporations prefer to issue short term bonds. At the same time, investors will prefer to lock-in rates in the long-tenor bonds. This should result in widening of credit spreads at the short end, and stable to tight credit spreads on the long-end of the yield curve,” says Dalal.

However, investors have to manage their debt investment while keeping in mind the income tax impact. “The taxation for all debt investments is now the same where the gains are taxed as per the income tax slab. Hence, the key is to look at investment avenues which generate better returns based on the tenure of investment. Debt Mutual Funds with Medium duration maturity can be one of the options at present, as we will see interest rates getting reduced gradually in the new year,” says Chetanwala.

Investors can also look at FDs and debt mutual funds. “Decisions to invest in debt should be driven by keeping capital preservation first, returns next and tax efficiency last,” says Harsh Gahlaut. “Today, debt instruments like FDs and debt mutual funds can offer low risk while beating inflation by a small margin even post-taxation,” he adds.

What should be your ideal asset mix of equity, debt, gold and real estate in 2024?
The ideal asset mix depends upon age, income, risk appetite, investment objective and many other factors which are specific to an investor. However, investors can always take a cue from broader strategy and tweak it to suit their specific scenario.

“To make a generalised recommendation, if an investor is looking for a high-growth investment with a strong belief of remaining invested for 5 years or more, then investing in an equity mutual fund should be the primary option to consider. Mutual funds are strongly regulated, low cost, offer diversification, are highly liquid and professionally managed. Investments can be customised as per an investor’s ability to take risks and the investment thresholds are low,” says Gahlaut.

Mutual fund SIPs are the best way to go for staggered investment into equities so that your investment is diversified in terms of timing as well. “Ideally, for long-term investment goals taking maximum exposure in equites would be a sound strategy. To mitigate risk an investor must invest in a staggered form, be disciplined and remain goal-focused,” says Gahlaut.

If your investment horizon is for 5 years, the suggested asset mix by Chetanwala is Equity 70-80%, Debt 15-20%, and gold 5-10%. For a 10-year horizon, he recommends 80-90% in equity, 5-10% in debt and 5-10% in gold.“Real Estate can be 10 to 20% for 10 years, in such a case the debt allocation can be skipped and the rest can come from equity allocation,” says Chetanwala.