Yearly wrap and importance of portfolio review

As we approach the end of 2023, we will look back some of the highlights of this year. India’ GDP grew by 7.8% in Q1 and 7.6% in Q2 of FY 2023-24 (source: Ministry of Statistics). As per S&P Global, India has been the fastest growing economy in G20 (the 20 largest economies of the world) in 2023. The equity market indices, Nifty and Sensex made record highs in 2023. We saw strong performance across different market capitalization segments; midcaps and small caps outperformed large caps. We also saw strong performance across industry sectors.

Interest rates are high globally, but there are indications that rates will come down in 2024. In its last monetary policy meeting held on 12^th and 13^th of December, the US Federal Reserve has indicated that it may start cutting rates in 2024. Falling interest rates may be positive for debt markets. Debt fund investors may expect volatility to decline in the coming months and quarters. Lower interest rates may be positive for equities also because it may stimulate industrial growth and consumer spending. Companies can borrow at lower costs to finance capital expenditure spending. Consumer spending may go up because borrowing costs for big ticket purchases (e.g. residential property, vehicles etc financed through loans) may be lower. Though we may have to wait for a few quarters before we see a rate cut, the medium term outlook for both debt and equity markets are positive.

Outlook for 2024

The OECD expects the global economy to slowdown in FY 2024 due to persistent inflation, high interest rates, geo-political conflicts and slower than expected recovery in China. However, based on strong macro-economic fundamentals, India may be expected to outperform. IMF has raised India’s GDP growth forecast for FY 2023-24 to 6.3%. With our economy’s performance, we may expect a higher share of global investment flows. 2024 will be an election year, as the Lok Sabha polls will be held in the summer of 2024. Historical data over the past 20 years have shown that the market makes a big move before elections. From a long term perspective, the India Growth Story may drive long term equity growth.

You may read our earlier article year end portfolio review

Lessons for investors

Equity as an asset class is volatile. We had several months of high volatility in 2023, but the Nifty 50 TRI gave 19% return on a year to date basis (as on 15^th December 2023, source: NSE). You should be patient through the volatile phases and always have long investment horizon for equity funds. A disciplined approach to investing through Systematic Investment Plans (SIP) can keep you focused on your financial goals and help you take advantage of volatility by lowering the acquisition cost of your investments.

You may also like to read - Importance of discipline in savings and investments

Importance of portfolio review

We are now in the final month of CY 2023. This is the time you should review your investment portfolio and plan for the upcoming year. Your portfolio may not just be limited to mutual funds; it may include other investments also. Portfolio review is important for several reasons:-

• It will help measure progress against your financial goals and take corrective actions.


• It will help you assess the risk in your portfolio and take measures to rebalance the risk.


• It will help you do your tax planning for FY 2023-24.


• It will help you rationalize your portfolio.


• It will help you remain disciplined in your financial goals.

How to go about your portfolio review?

• Review your financial goals. Your financial goals may change with increasing income and style, change in life-stage. You should revise your financial goal based on changed circumstances. We suggest you to read this what is goal based financial planning?


• Review performance of your mutual fund schemes versus the benchmark index over sufficiently long investment horizon (e.g. minimum 3 years for equity funds).


• Review your asset allocation. Your risk appetite and financial goals can change over time. Is your asset allocation in sync with your risk appetite and financial goals? If required, you should rebalance your asset allocation.


• Are you over-diversified? Investing in a large number of schemes does not imply more risk diversification. Please read this how to build a resilient portfolio?


• Review the tax consequence of your investments and plan accordingly, so that you can reduce your tax payment when you are filing your income tax returns. You can also take advantage of the provisions under Section 80C to maximize your tax savings.


• You should consult with your financial advisor or mutual fund distributor if you need help in the steps mentioned above.
  
  Note: Investors are requested to note that data/information provided above is based on information available on public domain at this moment. Views are personal. Investors should not consider the same as investment advice. Past performance may or may not be sustained in future and is not a guarantee of any future returns.

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