Where To Invest Your Hard Earned Money in 2024- Stocks, FDs, Gold, House???

As 2024 begins, investors need to carefully analyze which asset classes and themes have a good prospect of doing well in 2024 and make their allocation strategy accordingly.

First a recap of 2023. Equities did reasonably well in the second half as the Indian economy showed remarkable resilience despite high global interest rates and slowing economies in China and Europe. Small and mid-cap stocks outperformed brilliantly as the Indian economy and manufacturing fired on all cylinders. Sectors such as Railways, PSUs, and Defence were the stars of the show as the government dramatically increased expenditure on creating infrastructure with the ambitious target of making India a developed country by 2047.

Real Estate was the best performing asset particularly in metro cities seeing a huge frenzy. INR 7-crore apartments sold out in a single day in India’s millennium city of Gurgaon as the real asset showed an upturn after a very long down cycle. Apartments, houses, and plots showed triple-digit returns and flipping of apartments for monster gains has again come into vogue. Even rents in cities showed huge increases as back-to-office officegoers came back to work in cities from their hometowns during COVID.

FDs and fixed income also made a slight comeback as people could finally get some decent 7-8% returns on FDs after a few years of sub-par returns. However, the interest rate cycle has seemingly peaked with RBI holding rates and there is a good chance that 2024 may see rates going down. Gold and silver gave decent if unspectacular returns with gold making all-time highs of USD 2,100/ounce and more than Rs.61,000/10 gms in India.

So after this 2023 recap let us look at which assets might do well in 2024.

Equities should continue to perform decently as India’s economic prospects have improved dramatically and there is a high probability that political stability remains high with a pro-reform government. Small-cap and mid-cap valuations remain quite high while large-cap valuations remain in the decent range.

FIIs might come back strongly which might lead to sharp gains in their favorite index stocks like HDFC Bank, Kotak, etc. which remain historically in the low valuation band.  Banking, Pharma, FMCG, and Auto sectors have the potential to do well in the coming year. Chemicals could also do well as the massive oversupply caused by China last year decreases going forward. Infra stocks in defense, railways, and power did extremely well last year and could take a breather.

Real Estate has gone up too far too fast and may not give too high a return going forward in my view. However, RE cycles run for a long time of 5-8 years and we are only 2-3 years into the cycle so it may have more steam with less speed in my view. Falling interest rates could go further to boost the rally though the upside remains limited as affordability going forward for luxury may remain limited.

Fixed particularly LT debt funds could do well as the interest rates fall and yields increase. While the taxation change last year made debt funds unattractive, hybrid funds with a debt-heavy character could give good risk-adjusted returns and seem a good choice. Banks could also do well with a fall in interest rates as their margins may improve. However, inflation in the West remains a wild card and nobody knows whether it could see a resurgence.

Gold and precious metals like Silver in my view could be the dark horse and do the best. Gold is already touching all-time highs and could see a major multi-year breakout. Silver is extremely undervalued trading at half of its all-time high that it reached more than 10 years ago. It is in a major deficit in terms of supply and demand and its future growth driven by energy transition seems extremely bright in my view. Growth in solar energy is leading to massive demand growth for silver and EVs will be another major driver. Central banks in China, Russia, and Turkey are aggressively buying gold as they look to diversify away from the US dollar due to fear of sanctions. Falling interest rates could make gold gallop in the coming year.

In summary, Precious metals and commodities like copper, zinc, aluminum, etc. which are set to benefit from the green energy transition could be good bets in the coming year. Other asset classes may take a breather as they have done extremely well in the last year. In equities, large caps led by sectors such as Banking, Pharma, and Autos may do well.