A year of strong equity returns; build a well-diversified portfolio
Returns from investment are the best indicator of the performance of various asset classes. And that helps investors determine which asset class is a winner and which ones to avoid. While the winners among asset classes keep rotating every year, the absence of any such pattern over the last 10 years (see chart), reinforces the importance of asset allocation in building a balanced portfolio. Here’s a quick look at the performance of different asset classes in 2023.
After a lacklustre performance in 2022, domestic equities were back with a bang in 2023. The S&P BSE SmallCap Index is up 45% year-to-date (as of 27 December). The S&P BSE MidCap Index was up 42%. International equities also did well, with the S&P 500 Index delivering 25% returns in rupee terms. The S&P BSE Sensex, which is seen a barometer for Indian market, was up 18%.
Experts remain positive on Indian equity markets. “I am positive on the large-cap side. In terms of historical returns, we are not even at the trendline. In terms of valuations, we are not at the highest end. But I would say, investors need to be very cautious on the small-caps. A lot of new investors are entering the market and might get carried away by the returns being seen in the small-cap stocks," says Dubai-based Devina Mehra, founder of First Global group.
While equity is often seen as an important asset class for beating inflation in the long run, the historical pattern of returns show that equity investments come with a lot more volatility than other asset classes.
As per the Reserve Bank of India’s (RBI) housing price index, prices of houses have gone up by just 2% in 2023. This is despite strong sales and demand seen in the real estate market in this year. The RBI releases quarterly
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