S Prasad is a small investor who has had a great 2004, making a 'decent' killing in the rally. He is now looking forward to 2005 but is slightly confused in terms of his investments.

The initial invested amount has grown quite a bit, besides he also has investible surpluses every month.

Prasad is not the only investor facing a healthy investment 'problem'. Also, he wants to know if equity still remains the asset class to be in.

Business Standard spoke to some investment experts to answer these questions that Prasad and investors alike are facing.

Bimal Doshi, chartered accountant and financial consultant at Bhana Shah Doshi &Company: "This year has been good for the market. The index has touched a new high and the long-term perspective looks good.

"From here two situations can arise: The market may go up to 6800 and a correction may set in. If this happens, the correction may be in the range of 200 to 250 points and may remain for three to five weeks before it starts moving up again.

"If the correction does not come now and if market crosses, say 7400, then the correction may be larger in terms of points as well as time. The market has started moving up from 4400 so a correction can be expected in the range of one-third the rise, that is 600 to 800 points from the top.

"Therefore, one must think of partly booking profits on long-term investments and wait for the market to actually take the turn before deciding about their balance investments.

"Traders will have to be more watchful and keep a proper tab on his position. But in the long run, market looks bullish, banking and cement sectors in particular. Investors who are sitting on cash can wait for a correction to set in.

From the taxation angle, if there is a short-term capital gain earned prior to September 30, 2004 and if for the investments in hand if the value of the portfolio is below cost, investors can think of booking losses to save 30 per cent on short term gains earned before September 30, 2004."

Kashyap Pujara, assistant vice-president, portfolio management at Sushil Finance: "In 2004, we have seen the markets fall from a high to a low and again bounce back to a new high. Investors who have had the strength to ride out tough times have once again seen the markets acting as their friend and giving them above-average returns.

"Historically, this relationship is solid. Smart investing requires more discipline than one has ever imagined. Over the long term, your up years will greatly outperform your down ones. So to sum up 2004, it has shaken out weak investors who were lured to make a quick buck.

"However, it has greatly rewarded investors who stayed invested for a longer duration and rode out the initial tough times as well. Hence, one lesson an investor should remember before investing in 2005 is that one has to play the markets as a test match and not as a one-dayer.

"Overall, we like the underlying fundamentals of this market as it has one of the highest RoEs in Asia and is likely to maintain that ranking in 2005.

"We are bullish on the economy as such and believe engineering and capital goods, banking, chemicals & agrochem, auto ancilliary, and metals will do well.

"We are also bullish on IT, pharmaceuticals and textiles where outsourcing is driving growth. I believe that there are yet a large number of companies, which are still available at very attractive valuations.

"This means that the market still has the potential of giving very good returns to a long-term investor who invests in good quality stocks. Asset allocation is crucial in creating a well-diversified portfolio.

"An investor should tailor asset allocation to suit his needs. However, in an average age group of 35-50, we recommend to hold at least 50-65 per cent of the portfolio in equities for long-term capital appreciation.

"Looking at the current inflation numbers, the real interest rate (inflation adjusted rate of return) is barely positive. Hence, equities as an asset class will definitely augur well for portfolio in the longer run.

"The investor should look at commodities, primarily bullion, as an alternative investment in the portfolio. With the rupee expected to appreciate vis-à-vis the dollar, bullion yet has an upside potential.

"The balance of the portfolio can be in debt from a capital preservation angle and for maintaining liquidity in case of needs.

Dinshaw Irani, head - PMS at Sharekhan: "I believe 2005 will be a repeat performance of 2004. Though 2004 saw a fair bit of ups and downs but from the beginning of the year to the end, the Sensex was up a mere 12 per cent.

"However, within specific sectors, the movement was fairly large and pronounced.

"The clear winners were metals, cement, construction, capital goods, or more broadly, the entire infrastructure related sectors.

"Given the inherent strengths of the economy, I see this sector-specific out-performance continuing into 2005, though the overall index (as in the case of 2004) may not show much of a pronounced movement.

"Over the last couple of years, most corporates have restructured and as a result have started utilising capital more efficiently, thereby, improving profitability.

"Given the benign interest rate scenario and thrust on consumer credit, consumer spends have shot up resulting in optimisation of capacity utilisation.

"A number of corporates, both private and public, have announced big capital expenditure plans, thus, resulting in additional demand for infrastructure goods.

"Not only is the international scenario ripe for the country but there are even domestic triggers in place. India is in for exciting times and the same should manifest itself in stock markets.

Rushabh Sheth, CIO-Equity at Kotak Mahindra Mutual Fund: "It is critical for small investors to invest intelligently to meet their long-term financial goals. And there are several asset classes that they can invest in - company fixed deposits, gold, real estate, among others.

"Historically, however, equity investing has proved to be more rewarding (Rs 10,000 invested in equity, company fixed deposits or gold, in 1980 would have become Rs 2,36,700, Rs 1,28,000 or Rs 38,900 respectively by 2002.)

"The reason equities pay better is because they have higher risk attached to them. But research also shows that the longer the period of equity investing, the lower is the risk. And, of course, the longer you stay invested, the better the returns, because of the power of compounding.

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