The market has fallen, leading investors to think of safer havens to invest. But here’s why you may still bet on the equity market. Here we bring some of the strategies.
WONDERING whether to stay put in your stocks that may have been hit in the recent market crash or to liquidate and shift investments in other asset classes. Here are 10 reasons why it still makes sense to remain invested. Markets have come down from their recent highs in the past few weeks. While some of us might be thinking of cutting losses and putting money in safer havens, there are more than one reason still favoring the equity markets. Let’s check them out:
a) Long-term plan, lest we forget:
The basic principle that often gets buried in a bull market situation is that one should make investments with a long-term perspective. Any serious investor should remain invested in stocks, no matter what the current market situation is, for a couple of years but if the idea is to make quick bucks, probably he should sell and walk away. The intervening years may be volatile but the light at the end of the tunnel is what we all should look forward to.
b) Value-picking:
Perfect time for value picking, isn’t it? Stocks you always wanted to own but deferred, thinking they are a little overpriced. Experts believe that this is the opportunity to buy stocks, now available at better valuations. It’s like picking your favorite stuff from a superstore at, say 20-50% discount. So, hurry while the offer lasts.
c) Chance to diversify:
We all are aware of the need to diversify our investments, not just in different asset classes but also within classes. So if you had failed to do so, this is the time to add stocks of sectors missing in your portfolio. It might be that you had picked up stocks from sectors expected to give good returns in past but now have run out of favor.
Sectors that will participate in India’s growth momentum will be telecom, banking & financial services and engineering & construction. So take your pick from the buzzing sectors of today, now.
d) Bottom Fishing:
There are talks that the markets may have bottomed out. Which means one can make fresh investments during this downturn. Did anyone ask what if the markets correct further? Probably, it will be an even better buying opportunity!
e) E for Economy, I for Intact:
The growth story of Indian economy is largely in place. There were signs of some softening recently but again such policy matters are gauged with a long-term perspective. “There are no reasons why the outlook of Indian economy in the foreseeable period should change. Huge investments lined up in Indian companies are going to drive the economy further. Also, India’s contribution to the world GDP is on the rise and the current market situation is just a reflection of the global markets.
f) Invest step by step:
Can’t recall who said this: Time spent trying to time the market is better used analyzing stocks good for holding in the long term.’ No one can time the market; it’s like saying ‘when the next earthquake will hit Delhi’ with surety. Here, the rupee-cost averaging strategy becomes even more important. By doing so, the ups and downs of the market get smoothened out by investing a fixed amount of money on a regular basis over a longer period irrespective of the market situation.
g) Why hate volatility:
But markets are that way, or else how did we get the terms bulls & bears. Markets by their very nature move up and down. The real nature of the market doesn’t get reflected without this. In fact, volatility gives the chance to fund managers and small investors to revisit the market and pick stocks.
h) On your mark:
If you haven’t made investments in equities but always wanted to, now is the time to get started. From 21k level, not too long back, the Sensex is now trading in the 17,000-18,000 range. So, what are you waiting for? It’s all yours.
i) What about taxes:
How can we miss on taxes? Actual returns on any investment are known only after factoring in how much tax we pay on the gains. As far as equities are concerned, one is liable to pay short-term capital gain tax if investing in equities (stock per se or equity funds) for less than a year. This means one can save on these taxes by playing ‘long’. And lastly,
j) For returns, what else:
Sensex alone has given a historical record of 18% in the past 20 years or so. This means that if we simply invest in index stocks every year, the investment will generate better returns than from other avenues like FDs, PPF, post-office saving schemes, etc.
Balance portfolio in volatile market
You need to track your investments closely and ensure they are meeting objectives
Stock markets have been quite volatile from the beginning of this year. They saw a sharp decline on the back of a global market meltdown. Markets all over the world are in the grip of selling pressures. The recent volatility in the global markets is attributed to recession fears in the US economy. Currently, the markets are in a state of confusion and lack a convincing direction.
A rate cut in the US, data on the US economy, global liquidity crunch, activity in global commodities market and direction of crude oil prices, developments on rate cuts in domestic markets etc have been in the news. Analysts and large investment houses are watching these developments very closely. Therefore, in the short term, markets will be primarily driven by news (global as well as local) and as a result, we will see quite volatile moves. However, the economic and corporate fundamentals matter over the long term. Long-term investors should not worry much about this short-term volatility and in fact use it as an opportunity to pick fundamentally-sound stocks for their portfolios.
Building a portfolio
The first step in designing an investment portfolio is to identify the investment objective and risk tolerance of the investor. The investment objective could be funds to buy a house, savings for retirement, saving for children's education/marriage etc. The risk tolerance of investors depends upon several factors like age of investor, earning potential of investor, savings, assets owned by the investor etc. Investors with a higher risk tolerance can invest higher percentages of their total funds in equity and related instruments. Investors with lower risk tolerance should invest a higher percentage of their total funds in safer instruments.
These are some points investors can follow in the current market condition to balance their portfolios:
i) Buy Potential Stocks
Markets have corrected around 20 percent from their peak levels and currently are looking to be in a consolidation mode. Many blue chip stocks are available at quite attractive prices. Investors should identify and invest in fundamentally-good stocks, preferably large-cap (index companies) and some select mid-cap companies. Small investors should avoid trading in small-cap companies.
ii) Go Long Term
In volatile market conditions, it is difficult to predict the short-term direction of market as well as stocks. It is advisable to stagger your entry (or exit) into the market. Identify fundamentally good stocks and invest in a systematic pattern by buying in small lots so that you get a good average entry (or exit) point. Day trading or short-term trading is not advisable for small investors (especially in these volatile market conditions). Investors should take positions with medium to long term horizons in mind.
iii) Weigh Risk Appetite
Investors with a low risk tolerance should reduce their exposures to equities and especially their madcap/small-cap stocks investments.
Since investments in market instrument come with a risk of loss, investors should always invest their risk capital in the market. Investor should never borrow and invest in the market just because the valuation of certain stocks is looking attractive.
iv) Patience is the Key
It is recommended to create a well-diversified portfolio of 6-8 fundamentally good stocks. Investors should review the performance of their portfolio every quarter or six monthly and change the allocation as required. Active investors can keep a small portion of their funds liquid to cash in on short-term opportunities in the market. These investors should keep an eye on the markets and use any opportunity to enter into good stocks or exit from underperforming stocks. However, trading in stock markets is not recommended for investors who are risk-averse.
WONDERING whether to stay put in your stocks that may have been hit in the recent market crash or to liquidate and shift investments in other asset classes. Here are 10 reasons why it still makes sense to remain invested. Markets have come down from their recent highs in the past few weeks. While some of us might be thinking of cutting losses and putting money in safer havens, there are more than one reason still favoring the equity markets. Let’s check them out:
a) Long-term plan, lest we forget:
The basic principle that often gets buried in a bull market situation is that one should make investments with a long-term perspective. Any serious investor should remain invested in stocks, no matter what the current market situation is, for a couple of years but if the idea is to make quick bucks, probably he should sell and walk away. The intervening years may be volatile but the light at the end of the tunnel is what we all should look forward to.
b) Value-picking:
Perfect time for value picking, isn’t it? Stocks you always wanted to own but deferred, thinking they are a little overpriced. Experts believe that this is the opportunity to buy stocks, now available at better valuations. It’s like picking your favorite stuff from a superstore at, say 20-50% discount. So, hurry while the offer lasts.
c) Chance to diversify:
We all are aware of the need to diversify our investments, not just in different asset classes but also within classes. So if you had failed to do so, this is the time to add stocks of sectors missing in your portfolio. It might be that you had picked up stocks from sectors expected to give good returns in past but now have run out of favor.
Sectors that will participate in India’s growth momentum will be telecom, banking & financial services and engineering & construction. So take your pick from the buzzing sectors of today, now.
d) Bottom Fishing:
There are talks that the markets may have bottomed out. Which means one can make fresh investments during this downturn. Did anyone ask what if the markets correct further? Probably, it will be an even better buying opportunity!
e) E for Economy, I for Intact:
The growth story of Indian economy is largely in place. There were signs of some softening recently but again such policy matters are gauged with a long-term perspective. “There are no reasons why the outlook of Indian economy in the foreseeable period should change. Huge investments lined up in Indian companies are going to drive the economy further. Also, India’s contribution to the world GDP is on the rise and the current market situation is just a reflection of the global markets.
f) Invest step by step:
Can’t recall who said this: Time spent trying to time the market is better used analyzing stocks good for holding in the long term.’ No one can time the market; it’s like saying ‘when the next earthquake will hit Delhi’ with surety. Here, the rupee-cost averaging strategy becomes even more important. By doing so, the ups and downs of the market get smoothened out by investing a fixed amount of money on a regular basis over a longer period irrespective of the market situation.
g) Why hate volatility:
But markets are that way, or else how did we get the terms bulls & bears. Markets by their very nature move up and down. The real nature of the market doesn’t get reflected without this. In fact, volatility gives the chance to fund managers and small investors to revisit the market and pick stocks.
h) On your mark:
If you haven’t made investments in equities but always wanted to, now is the time to get started. From 21k level, not too long back, the Sensex is now trading in the 17,000-18,000 range. So, what are you waiting for? It’s all yours.
i) What about taxes:
How can we miss on taxes? Actual returns on any investment are known only after factoring in how much tax we pay on the gains. As far as equities are concerned, one is liable to pay short-term capital gain tax if investing in equities (stock per se or equity funds) for less than a year. This means one can save on these taxes by playing ‘long’. And lastly,
j) For returns, what else:
Sensex alone has given a historical record of 18% in the past 20 years or so. This means that if we simply invest in index stocks every year, the investment will generate better returns than from other avenues like FDs, PPF, post-office saving schemes, etc.
Balance portfolio in volatile market
You need to track your investments closely and ensure they are meeting objectives
Stock markets have been quite volatile from the beginning of this year. They saw a sharp decline on the back of a global market meltdown. Markets all over the world are in the grip of selling pressures. The recent volatility in the global markets is attributed to recession fears in the US economy. Currently, the markets are in a state of confusion and lack a convincing direction.
A rate cut in the US, data on the US economy, global liquidity crunch, activity in global commodities market and direction of crude oil prices, developments on rate cuts in domestic markets etc have been in the news. Analysts and large investment houses are watching these developments very closely. Therefore, in the short term, markets will be primarily driven by news (global as well as local) and as a result, we will see quite volatile moves. However, the economic and corporate fundamentals matter over the long term. Long-term investors should not worry much about this short-term volatility and in fact use it as an opportunity to pick fundamentally-sound stocks for their portfolios.
Building a portfolio
The first step in designing an investment portfolio is to identify the investment objective and risk tolerance of the investor. The investment objective could be funds to buy a house, savings for retirement, saving for children's education/marriage etc. The risk tolerance of investors depends upon several factors like age of investor, earning potential of investor, savings, assets owned by the investor etc. Investors with a higher risk tolerance can invest higher percentages of their total funds in equity and related instruments. Investors with lower risk tolerance should invest a higher percentage of their total funds in safer instruments.
These are some points investors can follow in the current market condition to balance their portfolios:
i) Buy Potential Stocks
Markets have corrected around 20 percent from their peak levels and currently are looking to be in a consolidation mode. Many blue chip stocks are available at quite attractive prices. Investors should identify and invest in fundamentally-good stocks, preferably large-cap (index companies) and some select mid-cap companies. Small investors should avoid trading in small-cap companies.
ii) Go Long Term
In volatile market conditions, it is difficult to predict the short-term direction of market as well as stocks. It is advisable to stagger your entry (or exit) into the market. Identify fundamentally good stocks and invest in a systematic pattern by buying in small lots so that you get a good average entry (or exit) point. Day trading or short-term trading is not advisable for small investors (especially in these volatile market conditions). Investors should take positions with medium to long term horizons in mind.
iii) Weigh Risk Appetite
Investors with a low risk tolerance should reduce their exposures to equities and especially their madcap/small-cap stocks investments.
Since investments in market instrument come with a risk of loss, investors should always invest their risk capital in the market. Investor should never borrow and invest in the market just because the valuation of certain stocks is looking attractive.
iv) Patience is the Key
It is recommended to create a well-diversified portfolio of 6-8 fundamentally good stocks. Investors should review the performance of their portfolio every quarter or six monthly and change the allocation as required. Active investors can keep a small portion of their funds liquid to cash in on short-term opportunities in the market. These investors should keep an eye on the markets and use any opportunity to enter into good stocks or exit from underperforming stocks. However, trading in stock markets is not recommended for investors who are risk-averse.
