Here's how small investors can generate big returns on investment of Rs 1 lakh

Indian equity market delivered a handsome return to investors in FY21 despite uncertainty over the Covid-19 pandemic and its impact on the economy. But should you remain bullish on equities amid rising infection cases in the country?

You should. Analysts believe that the benchmark equity indices may rally up to 15% in the new financial year. Therefore, they advised investors to remain heavy on equities as compared with other asset classes.

Gaurav Garg, Head of Research CapitalVia Global Research said that investors below 35 years of age with a long term outlook can take aggressive bets with respect to equity as an asset class. He believes that investors can invest 65% of funds in direct equities, 15% in fixed income options and rest in gold. “As the age increases, one should look at reducing the exposure to equity and increasing towards debt,” said Garg.

In an unprecedented rally, the BSE Sensex gained more than 20,000 points or 68% in FY21. Market analysts termed 2020-21 a roller coaster ride for not only domestic equity markets but also for equity indices globally due to the pandemic. But with markets making a comeback towards the latter part of the fiscal year, investors were rewarded with high returns. On the other hand, gold price advanced nearly 8% to Rs 44106 per 10 gram during the year. Meanwhile, it scaled the high of Rs 55,922 per 10 gram.

The 30-share index Sensex traded 36 points, or 0.07%, higher at 49,545 on the first day of 2021-22. Garg sees the index at around 56,300 by the end of the new financial year.

Rusmik Oza, Executive Vice President, Head of Fundamental Research, Kotak Securities said, “Earnings trajectory, global bond yields and FPI flows could drive equity markets in the short to medium term. It is ideal to invest 60% in large caps, 20% in midcaps and 20% in small caps.” He recommended stocks like SBI Life Insurance, Bharti Airtel, L&T, Kalpataru Power Transmission and Escorts for FY22.

Should one consider fixed deposits in this low-interest rate environment? Gopal Kavalireddi, head of research, FYERS explained that asset allocation is a matter of individual perspective, depending on age, financial capabilities and risk profile. The current scenario narrows down the investment choices to certain specific avenues.

“With interest rates trending down over the last 18 months, fixed deposit rates have dropped to 5% (1-year rate) while inflation averaged above the 6% mark. With growth clearly a priority for RBI and government, interest rates will continue to remain lower for FY22, and fixed deposit will be an avoidable investment option for the near future,” Kavalireddi added.

Gaurav Dua, SVP, Head – Capital Market Strategy, Sharekhan by BNP Paribas said, “Though the asset allocation depends upon individual’s risk profile and investment goals but, as a thumb rule, we would suggest 60% allocation to equity and the rest 40% in other financial asset classes like fixed income, gold etc.”