Tuesday's Talking Points
2024 Round-Up: Year Gone By Reiterates Asset Allocation is Key!
What’s the Point?
Asset class returns in 2024 defied many experts' expectations at the start of the year. Equities, particularly mid and small-caps, continued to deliver high returns driven by sustained earnings growth, favorable policies, and a supportive macroeconomic environment. Gold emerged as one of the best-performing assets, benefiting from lower interest rates, rising geopolitical uncertainty, and increased central bank purchases. Fixed income assets also outperformed their initial yields. Looking ahead to 2025, outlook for economic growth remains robust, tempered by concerns over escalating geopolitical risks, global growth moderation, and persistent inflation. With uncertainties abound, investors may continue to stay invested in growth via equities, while having a balanced portfolio via asset allocation.
Asset Class Returns - Historical Perspective
Note: Returns greater than 1-year period are Compounded Annualised (CAGR). Returns as of Dec 30, 2024. Gold and Silver are spot prices.
Source: Bloomberg, NIFTY Indices, CRISIL Indices, MCX
Equities – A Year of Strong Broad-based Returns
Developed Market returns were robust on the back of significant returns in the United States, especially from the large US Technology stocks, popularly referred to as Mag-7 stocks (Magnificent 7) that rose 70% during the year. In India, 2024 was largely a favourable year for equity as an asset class, despite some cooling off since September 2024. While Large caps as represented by the NIFTY 50 TRI was up 10% in CY24, the broader universe represented by the NIFTY Midcap 150 TRI and NIFTY Smallcap 250 TRI outperformed, as they were up 24% and 26% respectively! The strong performance by the broader market is in continuance of their performance in CY23. Interesting to note in the above table is that in the past 7 years – Small caps have been amongst the top performers in 4 years, and bottom performers in the other 3! Sectors such as Pharma, Realty, IT, and Auto did better than the overall market. In the recent drawdown, an interesting outcome was that fall in large caps, mid caps and small caps at the index level was relatively similar. Valuations for large caps continue to present higher margin of safety. Given the robust economic outlook, recovery in capex cycle and profitability of Indian corporates, investors should remain cautiously optimistic.
Fixed Income Markets – Representing Time to Accumulate
Global monetary policy largely moved in the easing territory, with more than 20 central banks including the US Fed, European Central Bank cutting rates in 2024. Global inflation has been moderating but at a gradual pace, and remains much higher than pre-pandemic levels.
In India, yields saw volatility, but the bigger story was reduction in yields across the yield curve. This led to better returns for higher duration portfolios. With food inflation driving up headline inflation, rate cuts in India are yet to be seen. Favourable macroeconomic factors over the medium term, supportive demand-supply dynamics, and the RBI's eventual start of rate cut cycle support the case for Fixed Income Investments. In fact, the recent rise in yield presents an opportunity to consider increase in duration. Refer our detailed note, “Delayed Not Denied” to know more.
Real Estate – A Big Asset Class waking up?
The residential real estate sector has been seeing an upcycle, with improved prices, low inventories, and strong affordability. Reflecting this positive outlook, new sales and new launches from developers were amongst the highest in the past decade. The premium segment fared better than the overall market. Potential for lower rates, consolidation in the sector, improved regulations / buyer protection, more robust balance sheets suggest the outlook remains favourable. On the leasing segment too, the post Covid-19 recovery continued in 2024 in terms of reported vacancies in office space. Several themes such as rising number of Global Capability Centres (GCCs) and increasing ‘Return-to-office’ mandates are improving outlook for the commercial real estate sector.
Gold and Silver – Safe Haven Assets continued to do well in 2024
In a year marked by high geopolitical uncertainty and the start of the global rate cut cycle, precious metals such as gold and silver reported returns of 21% and 19% respectively. These returns were lower than what is explained by movement in Dollar prices of Gold (up 27%) and movement in INR (depreciation of 3%), as the July Budget saw reduction in custom duties on gold, reflecting in their quoted prices in India. Historically, environments with decreasing rates have been favourable for precious metals, and thus, this asset class could be interesting going forward.
Conclusion
The importance of asset allocation was validated in 2024, as almost all asset classes did well in 2024 with varying intensity. Continuing outperformance from certain pockets of the equity market highlighted the importance of having a diversified portfolio. Portfolios that increased cash levels too much or too soon are likely to have underperformed, and were likely bettered by those that stayed invested or allocated money to asset classes such as Gold / Debt.
As we look forward to 2025, a round-up of the year gone by can be a useful read. An interesting perspective was penned down (like every year!) in the “Person of the Year", an annual article written by Navneet Munot, MD and CEO, HDFC AMC. Written in a witty and equally hard-hitting manner, the article presents to you a captivating flashback of events which left an indelible mark on world in 2024; and also look poised to shape the world in the future.
Sources: Bloomberg, NIFTY Indices, CRISIL Indices and other publicly available information.
About Tuesday’s Talking Points (TTP): TTP is an effort by HDFC AMC to guide key conversations in the Indian financial markets and investing ecosystem. We aspire to do this by providing relevant facts, along with our perspective on the issue at hand. If you have a topic that you would like to be featured here, please write to us at [email protected]
Disclaimer: Views expressed herein, involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed or implied herein. Stocks/Sectors/Views referred are illustrative and should not be construed as an investment advice or a research report or a recommendation by HDFC Mutual Fund (“the Fund”) / HDFC Asset Management Company Limited (HDFC AMC) to buy or sell the stock or any other security. The Fund/ HDFC AMC is not indicating or guaranteeing returns on any investments. Past performance may or may not be sustained in the future and is not a guarantee of any future returns. Readers should seek professional advice before taking any investment related decisions.
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