Last Updated: Jan 10, 2022, 04:14 PM IST

The year 2021 was a mixed bag for investors in India: equity markets soared 20%, fixed income instruments gave muted 5-6% returns while gold prices declined 7.5%. The only remarkable aspect was that the real estate market, which has languished for several years, started showing signs of revival during the year. The situation could be slightly different this year.

Let us look at how these asset classes are likely to perform in 2022, and how NRIs can get the most out of their investments during the year.

Equity investments

There are enough reasons to remain optimistic about India’s economic growth. However, the growth in corporate profits is already baked into the Nifty level. Analysts believe the stock market rally that began eight years ago is plateauing, and the returns hereon may not be as spectacular as in the past. In fact, many experts don’t rule out a healthy market correction that could bring down share prices to reasonable levels.

What should equity investors do in such a situation? A smart move in 2022 would be to book partial profits in stocks and equity funds and redeploy the proceeds in short-term debt instruments. Fund investors should park their redemption proceeds in short-term debt funds and start systematic transfer plans into flexi-cap equity funds. That way they are not completely out of the equity market.

Ditto for stocks that may have run up quite a bit in the past 2-3 years. Book partial profits and wait patiently for opportunities to emerge. The tech and auto sectors are expected to outperform in the coming years, so shares of frontline tech companies and auto manufacturers could be worthy bets at this juncture. Can’t decide which shares to put your money on? Go for a tech or auto mutual fund that diversifies your investment across a basket of stocks.

Fixed income investments

Inflation has risen above the comfort zone set by the RBI, and experts believe a rate hike is imminent. If rates are hiked, banks will also hike their deposit rates, but debt funds, especially funds that hold long-term bonds, would suffer. However, short-term debt funds will not be so badly affected. Therefore, investors should avoid long-term and medium-term debt funds and instead focus on short-term debt funds in 2022.

Some banks have already started raising their deposit rates. If you want to invest in fixed deposits, don’t lock up your money in very long-term deposits. Go for shorter tenures of 1-2 years so that when rates are hiked you can shift to deposits that offer higher interest.

Investing in gold

Gold prices declined in 2021, and could go down further in 2022 due to the US Fed’s hawkish statements on interest rates. The US dollar has strengthened in the past six months, which has brought down gold prices. For gold, the silver lining is the spread of the Omicron variant of the virus. If Omicron is not controlled, the resulting uncertainty could boost gold prices. NRIs might not find it lucrative to buy gold in India. The yellow metal is costlier in India due to import duty and GST. Last year’s budget cut customs duty on gold to 7.5% from 12.5%, a new cess and surcharge on customs duty means gold is 14% costlier in India than in the global market. So while it would be sensible to put around 10% of your investment portfolio in gold, don’t buy that gold in India.

Real estate

The property market has remained in the doldrums for several years. The good news: there are signs of a revival. Home loan rates are at historically low levels even as property prices have moved up only marginally. As a result, builders are witnessing a marked increase in buyer interest and an uptick in sales. The weakening of the rupee against the dollar and other major currencies may just be the opportunity that NRIs were waiting for.

NRI buyers need to be extra careful, especially when buying under-construction properties. Evaluate the track record of the builder and don’t get taken in by promises and marketing gimmicks. Most importantly, check if the project is registered under the Real Estate Regulatory Authority (RERA), which ensures timely delivery and adherence to the terms laid down at the time of booking. Some builders start selling their projects before getting RERA registration. Avoid buying into such projects.