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What should G-sec investor do?

Dhaval Shah | 10 Dec, 2014  | Follow Author | Add to my Favourites 
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After 1 long year, clients are now having double digit absolute returns between 11% to as high as 19% and annualised returns ranging from 7% to 12% in their G-sec investments.

View on G-sec is very clear now and everyone is chasing them

The complete cycle, I expected to unfold, got delayed by a year and all factors I expected are converging now. Commodity prices are coming down, GDP world across has been falling past 1 year except US and to some extent UK. Not inflation but deflation is a problem in most part of the world now. Gold and Crude prices remained in downtrend for past 1 year.

In anticipation of fall in above factors, I had advised to invest in G-sec.

What should G-sec investor do?

I believe, he should firmly remain invested in G-sec for entire 2015. Entire world is gearing in expansionary mode. Japan even after repeated attempts to stimulate growth through monetary easing, is doing it again aggressively. Europe is now at the place, where US was towards end of 2008, when US Fed started buying assets directly from companies, deleveraging broader economy and leveraging its balance sheet.

China resisted initially but as it feared that downturn in economy is real and could slip further, it started monetary easing last month with rate cut. China also lifted one house policy to bail out housing industry.

US is expected to start raising interest rate from 3rd Quarter of 2015 but if dollar continues to strengthen, as it is likely, Fed will postpone it to 2016. With fall in commodity prices, it is even harder for Fed to achieve 2% inflation target at current policy. Some are expecting resumption of easing by end of 2015 to achieve inflation if it remains muted for most part of the year.

Above economies, put together, constitutes 70% of world economy.

Indian economy too has started feeling the pinch of slowdown. Festive season remained muted for Auto and FMCG companies. Manufacturing is still not picking up. Elevated prices of real estate still refuse to moderate. But, underlying current has weakened. It reflected in credit take off from banks. Credit growth of banks came down to 9% from 15-16%. Even much claimed FII investment in Equities is at half the level of last year.

In all, what I want to emphasize on is, world has still not recovered from shadow of 2008 crisis. Demand is still considerably down. Overcapacity is visible in almost all sectors of the economy. World can still fall back into recession.

Therefore, it is prudent to be (diversified) invested in 4 types of assets

1. Which goes up when inflation is more than expected

2. Which goes up when inflation is less than expected

3. Which goes up when growth is more than expected and

4. Which goes up when growth is less than expected.

I will write on it in detail sometime next month.

On rate cut cycle

I expect, rate cycle will be much faster than it is expected. The pace with which commodity prices are coming down and the world growth is dwindling, every nation is entering into expansionary mode. Keeping the cost of money low is inevitable to sustain economy.

I expect most of the rate cuts should take place in 2015. By the end of 2015, investor should have double digit annualised returns reaching as high as 20% annualised and 30-35% absolute returns.

About Dhaval Shah

Dhaval Shah has been working in the field of investment advisory for more than 10 years, and has been writing about investments for 4 years. His areas of interest include world economy, currency & commodity markets, and Indian & foreign stock markets.


For more information, please contact [email protected]


Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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