Investment outlook across asset classes in 2024

The calendar of 2023 offered fairly good returns to investors across asset classes, be it equity, debt or gold. Even fixed deposits (FDs) with banks yield relatively high interests. So how will 2024 pan out for investors? Let explore what the different asset classes hold for investors this year,                                                        

Equity

The Sensex gained 16 per cent during the calendar of 2023 moving up from 61000 to close at 71000 levels, with most of the gains coming in December pursuant to the Federal Reserve indicating rate cuts in 2024. The mutual fund industry did exceptionally well during the year with assets under management (AUM) growing from Rs 40 lakh crores to Rs 49 lakh crores. IPOs picked Rs 50,000 crore from the primary market, despite the absence of mega issues. 

Come 2024 the geopolitical tensions in Ukraine & Palestine haven’t abated. Further, there is the added headwind from Houthi militant attacks jeopardising commercial shipping in the Red Sea. There is also the new Covid variant - JN.1 - lurking in the horizon. These factors could play party-poopers in the stock market rally the country has been witnessing. Investors can buffer their equity investments in 2024, through SIPs in mutual funds. 

Debt

It was not a good year for debt mutual funds, in 2023, with most of them delivering returns between 7-8 per cent. The scrapping of indexation benefits on debt funds from April 2023 was a major blow since it removed the tax arbitrage between debt funds and bank FDs. Reserve Bank of India may take the cue from the Federal Reserve and implement repo rate cuts, which should augur well for investors in debt mutual funds. In response, the yields on 10-year G-sec have already softened to 7.10 per cent. Investors having an investment horizon of two to three years may consider investing in long-duration debt funds to get decent returns. 

Gold

Gold in dollar terms gave a return of 9 per cent in 2023 ending the year around $ 2,050 levels per troy ounce. In rupee terms the return was 13 per cent, courtesy the depreciation of the Indian currency against the dollar. Gold will continue to benefit from the continuing geopolitical crisis and volatility in markets. It should do well in 2024. Though gold should be a part of every investor’s portfolio since it has a negative correlation with other asset classes, experts advise that gold should constitute 10-15 per cent of the total portfolio at most. With the scrapping of indexation benefits from April 2023, Gold ETFs have lost sheen compared to physical gold, despite risks associated with the latter like theft, conversion charges and storage costs. Sovereign gold bonds (SGBs) are the best option, if the investor has a long-time horizon. The advantage with SGBs is that you get an additional 2.50 per cent interest every year during the tenure of 8 years, as well as the exemption from long-term capital gains tax, if you hold them till maturity.

Bitcoin

After a forgettable and nightmarish 2022, major cryptocurrency Bitcoin saw a stellar revival in 2023, beating other asset classes such as, equity, gold and debt, hands down.  Bitcoin gave a stupendous 164 per cent return in 2023 going up from $16,700 to $44,000 levels in December. Many pundits believe that Bitcoin is in the final stage of evolution and may soon be accepted as an asset class by investors. The likely halving of bitcoin during 2024 and the possibility of US regulators approving the first Bitcoin ETF should help Bitcoin do well in the new year.

In the end, it always pays to have a diversified portfolio comprising all asset classes.