After almost over four years of good times, the Indian economy is looking at a slowdown. Industrial production is already down and the stock market mayhem in the last two months is reflecting that the global scenario continues to be grim. In such a situation, investors find themselves in a situation where they are unable to decide where to invest.
Safe havens
Some part of your portfolio should always include safe instruments. However, for starters, it should be said that there is nothing that can be called 'safe' at all times, except maybe government-backed instruments.
For instance, investing in gold can be a considered safe when there is a crisis of confidence in the equity markets. At other times, commodities like silver or metals might also fall in this category.
With the rise in investment opportunities, the scope for the investor has also increased in the recent years. Traditional routes that provide assured returns is also a way to achieve safety. Instruments like bank fixed deposits and post office savings could be a primary source to achieve this objective.
The idea is to have some money in instruments that are less likely to be affected by the prevailing crisis all around. Remember that safe havens can be spread across different asset classes and they are dependent on the current market conditions.
Cover against recession
There are several sectors where the impact of an overall slowdown might be negligible. This is because of the fact that there will always be some demand for those goods and services. Hence, it is unlikely that there would a sharp change in the consumption pattern of these items.
Take for instance, companies involved in the making of food items. No matter what happens to the economy, these companies will continue to do okays. In many cases, people may switch from expensive options to cheaper ones but consumption per se will not be too badly impacted.
So such industries are likely to recession-proof. Another very good example of this is children's items where parents are unwilling to cut spending even when the times get tough. Several of the basic requirements will also witness strength in their demand and this can mean good times for listed companies who are into such areas.
It's important for one to choose properly from such options and invest in them, directly through stocks or mutual funds. Others like art and specific collections are also examples whose value may not get eroded in recessionary times because they are not related to the markets. This is one of the methods that can be used to ensure that your investment basket has an element of safety.
Growth areas
The other way in which one can deal with investments, especially those that are related to the equity side, is to move towards areas that are growing in spite of the situation.
If there is going to be a growth in that particular area then there is a good chance that the valuations and other parameters of such sectors will continue to remain strong.
Sectors like infrastructure financing or telecom related areas are good examples of sectors, which may not be too badly impacted, in this mayhem.
This does not guarantee that there will not be a fall in the value because when it comes to equities there is nothing that an investor can do to stop a fall along with the market as a whole. In case of equities, that are related to growth sectors, it is more likely that when there is a fall the recovery can also be quick if the growth continues.
There are exceptions to this situation especially when the valuations are already too high so that a fall is actually bringing them safer valuations.
However, targeting growth areas will also ensure that the individual is able to get good value for the investment where things improve. That is, having positions in stocks with strong fundamentals will ensure that there is wealth creation for the investors.
