Equities have outperformed its competing asset classes in 2012. While benchmark indices have rallied as much 27%, even the various category of equity mutual funds have given returns ranging from 22% to 48%. Other investment avenues like gold and different types of debt funds have yielded 8-12%.
After an unexciting 2011, in which investors flocked to safer alternatives, the equity market not only started the year on a positive note, but is also likely to close the year with its highest annual return since, thanks to the strong FII inflows. Even as there appeared bouts of interruption due to slowing growth, policy paralysis and fear of retrospective tax treaties, the market in general weathered the selling pressures and the stronger buying by FIIs have turned the Indian market one of the best performers globally.
Not surprisingly, mid caps and small caps have benefited a good deal with the segment indices gaining 32-37%. Among the sectors, FMCG and banking were the preferred space; the average category returns by mutual funds focused on these sectors are about 48%.
Various categories of debt funds, on the other hand, have returned close to 9-10% during the year, while retail investors continued to prefer debt instruments and tax-free bonds to equities. While equities benefited from strong buying by foreign funds, retail investors are believed to have booked profits on a chunk of their equity portfolios through mutual funds to encash the capital value of the same as the benchmark indices have now reached their two-year highs.
As a result, while the FII net buying stands at about $23 billion for the year, the domestic financial institutions have sold $10.5 billion or R55,000 crore of shares. The net outflow from the equity schemes for the first nine months of 2012 was close to R12,700 crore.
Meanwhile, gold and gold funds have underperformed the equity benchmarks for most part of the year. Even after hitting an all-time high of R32,500 (Mumbai standard), gold prices failed to beat the equity market returns for the first time since 2009. Investors cite higher prices and alternative investment options as a deterrent to gold’s performance in 2012 also as the global economic situation found a footing with the subsiding of the European debt crisis.
In April 2012, Thompson Reuters GFMS said that the more-than-decade-long bull run in gold may come to an end in early 2013 if prices touch new highs.
Further in August, the precious metals consultancy estimated the gold imports to India, the world?s biggest consumer, may fall 26% to 650-750 tonne in 2012 as record high prices following increased import duties affect consumer demand.
