Indian stock markets were the best performing last year after China. A rally of 30 per cent on the Sensex in 2014 is certainly stupendous. The one factor that led to the sharp rally was a victory for the Narendra Modi led government. Many analysts are almost sure that we would not get returns of 30 per cent in 2015, but, the returns could be more then other asset classes.
Here's why returns could be higher from shares...
To begin with economic fundamentals are improving. Brent Crude Oil prices have dropped from $110 a barrel to the current levels of $58. What this means is that inflation in India will continue to be low. Currently WPI Inflation in India is at zero per cent.
The other big factor that could continue to ignite equities is the Narendra Modi government which at the moment seems bent on getting things done. How far would it be able to get bills passed especially in the Rajya Sabha remains a big question.
Nontheless, there is a resolve on the part of the government to get things done. This should augur well for industry and shares in particular.
A big bang budget which is due in under two months from now, should also provide the requisite impetus to stocks.
Other economic fundamentals are also slated to improve. The current account deficit is under control, which means the rupee would no longer be bearish against the dollar. At the moment it does not seem there are any negative factors apart from the global factors like a a hike interest rates in the US which could pose worries for the stock market.
Falling Interest rates no longer make Fixed Deposits attractive
Returns from shares should beat fixed deposits. Until a few months ago interest rates on bank deposits were close to 9.25 and 9.5 per cent. It is very difficult to find reputed banks offering similar interest rate now. Interest rates in the economy have fallen and in 2015 analysts expect the RBI to cut interest rates by 0.5-0.75 per cent. What this means is that you could get interest rates closer to 8-8.25 per cent from bank deposits. So, 2015 may not be a very good year, if you are planning to invest in fixed deposits.
Why Gold is not rallying anytime soon?
Whenever equities rally gold is likely to fall. At the moment there seems to be very little reason to believe gold would rally in 2015. Read our views on gold for 2015 here
Currently, it is very difficult to think beyond equities. However, one must note that if you are looking to buy shares, do not chase anything and everything. Wait for markets to stabilise or fall a little before investing. Probably, you would get much better rates than what is currently prevailing.