High Risk, High Return
Even though the bond and equity markets are currently in a potentially vulnerable space, there are several rewarding opportunities available to discerning investors. In spite of underperformance in recent years, there is a small selection of specific segments within each basket with the potential to deliver significant gains. For example, infrastructure companies and PSU stocks have been lagging behind recently, as have credit risk funds. Does this mean they’re bad investments? Or, could they be good investments for those with an appetite for risk? This article delves into these funds and other high-risk investments that have to potential for sizable payoffs if you can stomach the risk.
1. PSU Stocks
Even though PSU stocks have become known as some of the weakest performers in the past few years, market analysts have made bullish predictions for these stocks with a dominant market share and strong financials. Investment experts now claim that PSU stocks have been receiving an irrational beating because they are essentially owned by the government and if you had to make a closer inspection, it would become clear that the balance sheets are superior. Governments are falling short of strategic disinvestment and privatisation targets but this is meant to change in the near future which will affect potential payoffs. Besides the influence the privatisation may have over PSU stocks, revenue shortfalls experienced by governments could also boost attractive dividend yields.
2. Infrastructure Stocks
Barring a few exceptions, infrastructure stocks have remained relatively subdued in recent years. Issues like environmental clearances and land acquisition as well as the extended monsoon have been major challenges to the industry. In a recent turnaround, the government announced that infrastructure stocks will be receiving some attention and capital outlay. With this welcome push to the sector, there is a chance that these stocks will be revitalised which could mean that it has excellent investment potential.
3. Small-Cap Funds
There has been a significant increase in interest in these stocks because of major changes in the market. The latest investment guidelines are indicating that small-cap funds now have a broader range of stocks to choose from because of these changes that involve allowing investors to choose stocks ranked beyond the top 250 in terms of market capitalisation for 65% of the fund corpus. Additionally, the risk spread for small and micro-cap funds has begun to rise sharply whereas mid and large-caps continue to remain low. It is important for investors to remain cautious, there is a significantly higher risk where small companies are involved, especially as markets are in the midst of a slowdown.
4. Credit Risk Funds
Credit risk funds are highly affected by credit events like defaults and downgrades. For anyone investing in debt funds, losing between 5% and 7% of capital in a day can be upsetting, especially when you realise a year’s gains can be wiped out in a single day. Because credit risk funds carry a higher risk of default, it is crucial for investors to go for schemes and fund houses with a good track record.
Not for the Fainthearted
Bear in mind that only investors who are comfortable with volatility should consider these investment options. They should be experienced, understand the markets and the risks involved and be aware of potential losses.