Only thing about markets is NOBODY knows what will happen in the future. Some of us sound like a genius by saying the same thing again and again. Some other brave fools go to the roof top and say ‘Market will go up 22% this year’ and the market makes them look like fools.

However, one thing clear is ‘If you buy an EXPENSIVE asset it is likely to give you POOR returns for very long periods of time’.

So, in 1945,  if you were unlucky enough to buy US bonds at 2% p.a. , you would have got NEGATIVE returns of 3.5% for the next 35 years. (The Economist).

So when interest rates are low (in Indian conditions it means 10 year Gsec paper at 5-6%) DEBT is said to be EXPENSIVE. When price earning ratio is high, EQUITY is said to be expensive. Sadly high and low are always known in RETROSPECT. However, clearly US Gilt (the so called safe haven) is damn damn expensive now. So chances are more money will flow to equity. Also since there is lesser risk now in developing market debt theoretically it is possible that Brazil and India may hold each other’s currencies worth say US $ 5 billion. Serves as a natural hedge too, and as a portfolio diversification.

Now YOU have to decide whether Indian debt is expensive or Indian equity is expensive.

My view is DEBT is still CHEAP. If I can get good quality debt like SBI at a yield in excess of 8% p.a – and the 10 year GOI is 8.5%p.a. at least DEBT is NOT expensive. Yes if debt was available at yields of 12%, that would be great, but the current price is not bad for a buy and hold guy.

Having said that some good shares look like it can give about 12-14% returns over the next 5 years. Effectively I am saying the index going from 17000 to 34000 in 5 years (continuing my scream of 34000 index by 2017). Ok I hate predicting the sensex (never had the need to do it, did it a couple of times successfully, but stopped because it makes no sense to ME).

Some stocks look alluring, lot of debt is getting expensive (to me debt means only SBI bonds, I do not go lower on quality of debt) – so for me ‘attractive’ Muthot, Sriram, Indiainfoline pricing is only noise, not information.

So if your portfolio has appetite for debt, put lump sum in bonds, or take a punt even with longer maturity bond funds like gilt (I maybe wrong by a YEAR, but not about the direction, I hope), and start doing good stock picking in the top grade scrips including interest rate sensitives like auto. I am an auto fan and have Tata Motors DVR, Ashok Leyland, Bajaj Auto, Force Motors, Hero Honda – so to that extent I am biased…so be careful about what I say.

Stocks or bonds? Hmmm i hope i have got you confused….

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  1. Nice articulation of thoughts. Just a quick Q- why would you put Shriram Transport in the league of Muthoot? Isn’t the mgt of Shriram much better and efficient?I think the conclusion was Stocks AND Bonds!

  2. i am a nobody to comment on management. To me it is binary. It is a AAA permanently or it is risk. So a SBI, Hdfc or Tata Finance. Or none. So all other than these 3 are equal for me. I do not invest. Simple. Obviously readers do.

  3. 34000 in 2017 , Phew!! Sir, 2013 is going to be a year of elections with huge spending and deficit. Basically you are backing Indians to elect a stable and reformist Govt.

    Fundamentally 34000 looks impossible. Of course markets dont care about Fundoos 🙂

  4. hey do not hold me to it. Indians have withdrawn Rs. 200,000 crores from the market. The goras have put 22 billion US $ into it – Rs. 110000Rs. crores. Indians have been buying gold, RE and bank deposits.

    The worry is the deficit, and the Indians unwillingness to invest in equities. Yes some of these things HAVE to fall in place…

    ONLY then will 34 happen. Speaking of fundamentally, why is it not possible? who says so? Though i HATE taking short term calls..i still stand by 34k – maybe 2018-9 will SURELY see it.

  5. Some experts feel, We are passing through the biggest bubble (call it a grand Ponzi scheme) in the history of the world – a bubble in government debt, asset prices, and promises. Your views?

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