The last twelve months have been exceptional for the Indian stock markets. Not only have the benchmark indices scaled life highs, the broader market comprising mid and small caps has done very well for itself. As today's chart clearly shows, equities have been the place to be over the last one year. Returns from all other asset classes look quite puny compared to the returns from stocks over the last year. Even Gold seems to have lost its luster.
Does this mean that investors should jump on to the bandwagon and enter the markets now? We believe that it would be a very poor decision to abandon the principles of asset allocation and jump headlong into equities based on one year returns. Investment in equities should always be made for the long term, in companies with sound fundamentals. Also, one must always keep the valuations in mind before investing in stocks. We also believe that investors should hold about 5-10% of their assets in Gold at all times. The yellow metal is an effective portfolio diversifier and provides a good long-term hedge against inflation.