INVESTING should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas.” When Nobel Laureate Paul Anthony Samuelson (1915-2009) wrote these famous lines, his point was clear — there is no alternative to patience in investing.

Real paint takes time to dry, but in India, the metaphorical investing paint has been drying in real quick time. In the last two years, every asset from shares and gold to real estate has given high double-digit returns driven by FPI inflows, decline in interest rates, strong earnings and benign inflation. However, the dream run halted in October 2024 as FPIs started withdrawing money from bond- and capital markets, leading to a sharp correction in equities. Inflation overshot expectations and corporate profit after tax dipped 2% in Q2 FY25, the first decline in eight quarters. India’s GDP growth hit a seven-quarter low of 5.4% in Q2 due to a slowdown in manufacturing and investment demand. Alongside, the victory of Donald Trump led to a rally in the U.S. dollar, triggering outflows to the U.S. and selloff in precious metals such as gold and silver as yields on U.S. Treasury bonds became attractive.

These developments have changed the investing game. What worked in the last two years may not work in 2025. Big investors are tweaking portfolios and it’s time for retail investors to do the same. “It is a volatile scenario. In the last few months, there was an outflow by FIIs, as Indian markets were expensive and capital flowed back into the U.S. after Donald Trump won the presidential elections. The trend was boosted by an appreciation of the U.S. dollar and a rise in yields,” says Dhananjay Sinha, co-head of Equities & head of research at Systematix Group. The U.S. equity market is cheaper given the high growth in earnings of S&P 500 companies. David Kostin, chief U.S. equity strategist at Goldman Sachs, expects U.S. earnings to grow 11% in 2025. Motilal Oswal expects Nifty 50 companies’ combined net profit to grow just 5% in FY25, the lowest since FY20. This may translate into just 3% growth in dollar terms given the steady fall in the value of the rupee. The rupee is down 2% against the dollar in 2024 so far. Analysts expect the trend to continue given the poor growth in corporate profits. “There has been a nearly 7% downward revision in Nifty 50 companies’ earnings in the last six months, which has reduced the expected FY25 earnings growth to just 5%, the lowest since FY20,” analysts at Motilal Oswal Financial Services wrote in their earnings review for Q2 FY25.

Sinha says Nifty 50 is trading around 23 times trailing earnings per share. The average earnings growth during FY24-27 is expected to be 9.5%. This translates into price to earnings growth (PEG) ratio of 2.3 times. “The S&P 500 is around 24 times trailing earnings. Earnings growth is expected to be around 15% CAGR over the next three years. This gives the U.S. market a PEG ratio of 1.6X, making it cheaper than India, where corporate earnings are being downgraded. So, money is going back to the U.S.,” says Sinha.

Tweak Time

The biggest issue for India will be the economy, says Sinha. “The poor growth in Q2 led to outflows. There will be more volatility in equity and currency markets if the next quarter is also weak,” he says. “There is a need to tweak the portfolio as cyclical sectors are unlikely to grow. Capex-led sectors such as infrastructure will underperform as they are supported largely by government spending, which is under pressure. Some of these cyclical sectors will see volatility,” he adds, preferring low-volatility sectors. “Capital will flow to IT, pharmaceutical and consumer sectors where earnings visibility is good as the government may use revenue spending to boost consumer demand. Rural sectors such as farm equipment will also do better,” he adds.

“The market is fairly valued for large-caps and slightly expensive for mid- and small caps,” says Gautam Duggad, head of research, institutional equities, Motilal Oswal Financial Services. “We like financials, IT, real estate, industrials, consumer discretionary and pharma due to visibility of earnings growth,” he says. “We are underweight on auto, cement, metals and oil & gas. We were overweight on auto for two years but have downgraded it now. We believe the growth will slow. The same is the case with cement and metals as commodity prices have been subdued,” he says.

Realty Rising

Duggad is bullish on real estate and hotels. “There are a few more years of the upcycle ahead,” he says. The real estate sector has been witnessing robust demand after Covid-19. According to real estate services firm JLL, gross commercial space leasing is expected to cross 70 million sq. ft. in 2024, beating the previous high seen in 2023. “The commercial space absorption has almost tripled from 25 million sq. ft. in 2021,” says Siva Krishnan, senior managing director at JLL India.

When office absorption goes up, the demand for houses also increases as more people can afford to live near workplaces. JLL expects sale of 3.05 lakh apartments worth ₹5.10 lakh crore in 2024. This is across the seven big markets of Delhi-NCR, Mumbai, Kolkata, Chennai, Bengaluru, Pune and Hyderabad. “Any time is a good time to buy from an investment perspective. Housing prices will not fall in the next three-four years due to rising land prices,” says Krishnan.

According to a report by realtors’ apex body CREDAI, real estate consultant Colliers and data analytics firm Liases Foras, housing prices in India’s eight major cities rose 11% in the September 2024 quarter. Delhi-NCR reported the steepest increase (32%), followed by Bengaluru at 24%. “Demand, velocity and price index are all going up. Anyone investing now will make money, though there will always be ups and downs because real estate is a cyclical sector,” says Krishnan.

AIFs — The Big Daddy Of Funds

Investors keen to earn from opportunities like start-ups can choose alternative investment funds (AIFs). AIFs are pooled investment vehicles which raise funds through private placement (mostly HNIs and family offices); they cannot invite the public at large to subscribe to their units. AIFs invest in tranches. The funds raised trail the commitment amount. Think of AIF as a SIP where a person invests a fixed amount at regular intervals. AIFs invest in high-growth areas such as start-ups, venture capital, private equity and commodities. “AIFs are the fastest-growing asset class in the investment universe. They are fast gaining popularity, especially among HNIs and family offices, because these investors already have enough traditional investment avenues. They need diversification into investments which are not correlated to markets,” says Ashish Chugani, head of Alternative Assets at Nippon Life India AIF Management Ltd.

The total investments by AIFs have crossed ₹5 lakh crore, says Sebi. Investment commitments were ₹12.43 lakh crore at the end of the September quarter, it adds. Real estate has got the most investments (17% of total, that is, ₹75,000 crore). Category-II AIFs account for the lion’s share at ₹2.9 lakh crore. These AIFs, which do not use debt, invest mostly in unlisted companies, real estate and private equity. Since about 70% AIF money is invested in the unlisted space, returns are much higher than what one can earn from traditional investments in listed stocks, albeit with higher risks. Chugani says AIFs provide returns across the yield and risk curve. “VCs and PEs can give higher returns with higher risk while performing credit (say investments in bonds issued by small and medium enterprises or structured corporate issuances) offer lower returns than equity with lower risks,” he says. VCs and PEs usually return 20% while performing credit gives 15-20%.

“AIFs provide a bouquet of products. Investors can choose where they want to invest depending on the risk appetite. AIFs also allow investors to participate in the India growth story through expert investment managers who understand due diligence requirements for different asset classes and subclasses, and can access opportunities and exits,” says Chugani.

Gold Is Not Old

High risks are not for everyone. Anyone who cannot stomach the volatility of equities can always turn to the safety of the yellow metal. In fact, when stock markets go downhill or are volatile, gold is where investors find growth and safety. “Precious metals such as gold and silver always provide a cushion to investors. They often have a low or negative correlation with stocks and other asset classes. This reduces portfolio risk,” says Ramesh Varakhedkar, head, Commodities and Currency, ICICI Securities.

Gold does well during uncertain periods. “It should be preferred for diversification. This is truer today as most asset classes are near all-time highs and the world is looking at the commencement of the Trump administration from January 2025 as he has hinted at taking steps to protect the interests of the U.S.,” says Varakhedkar. With Trump likely to impose trade restrictions and the U.S. Federal Reserve set to opt for an aggressive monetary policy, it’s time for investors to rejig portfolios. “Geopolitical tensions are another concern for global markets. Considering these factors, gold is likely to emerge as the best investment option,” he adds. Indian households owned 25,000 tonnes gold in 2023, equivalent to 40% of India’s GDP, according to the World Gold Council. The country has imported around 17,500 tonnes gold in the last 25 years.

While jewellery, coins and gold bricks continue to be the most popular medium for investing in precious metals, the digital revolution has caught on here, too. “The rise of online platforms has made it easier than ever to trade or buy gold,” says Varkhedkar. These platforms enable customers to buy and sell online. Digital gold is suitable for small investors who prefer flexibility and liquidity; one can buy and sell in small denominations any time. Digital gold is backed by physical gold in a vault.

Exchange-traded funds (ETFs) that track gold prices can be bought and sold on exchanges and provide an easy way to invest in gold, says Varakhedkar. Online gold ETFs cost less than physical gold due to lower acquisition and owning costs (no physical storage). They are also exempt from value added tax and securities transaction tax.

Rising inflation will also push investors towards gold. “Gold and silver often retain their value or appreciate during periods of high inflation as they are seen as a store of value. If the U.S. Fed continues to reduce rates, it will boost precious metals,” says Varkhedkar. “Industrial demand is likely to lead the silver market,” he adds.

Crypto — For New-Age Investors

A fast-growing option for those not averse to volatility and risk is cryptocurrencies. They are not recognised as legal tender in India but investors can hold and trade them. They are considered as financial assets and attract 30% tax on gains and 1% tax deducted at source. Cryptocurrency trading is a high risk, high return activity. “Investors must sign up with a trading platform registered with the Financial Intelligence Unit (FIU-IND) in India. This simple step itself can go a long way in keeping investments safe,” says Balaji Srihari, VP, CoinSwitch. Some of the cryptocurrency brokers listed with FIU-IND are CoinSwitch, Binance and Mudrex. CoinSwitch allows users to buy and sell over 200 crypto tokens on the platform, including Bitcoin, Ethereum and Tether. After registering themselves with the platform, customers have to go through a KYC and link a bank account. “We have additional checks and balances to ensure the safety of the investments,” he says.

Bitcoin, the oldest and most popular virtual digital asset, is trading at around $1 lakh but customers can invest as little as ₹100 and buy a fractional unit. Investors can encash the asset in part or full. The amount will be converted into rupees and transferred to the investor’s bank account.

Given the high volatility in cryptocurrency prices, they are not a great option for risk-averse investors. Bitcoin hit $73,000 in March this year, retreated to $60,000 in the summer and fell below $55,000 in September. “The minimum horizon for an investor in crypto should be one year. People who have been holding on to crypto (Bitcoin and Ethereum) today are reaping the rewards. Virtual digital currencies can be anywhere between 1% and 5% of the portfolio,” says Balaji. “Start small and invest regularly. It is best to treat crypto like a SIP because it is not a get-rich-quick scheme or a lottery. The approach should be methodical and consistent,” he adds. The advice for ‘methodical and consistent’ investments is not for cryptos alone. It is possibly the oldest way to make good returns because it pays to watch the paint dry and watch the grass grow.