Here are some strategies to get your portfolio back on track again after the results season
The domestic stock markets are in correction mode since the end of second quarter result season. Key market indices have corrected almost eight percent from its peak levels and the valuation in many counters look quite attractive. Investors should note that there is not much change fundamentally or from a macro-economic perspective and therefore, the long-term outlook remains bullish for the stock markets.
Investment opportunities in developed markets are still quite limited as they are struggling for economic growth. The soft monetary policies in developed countries are expected to drive the fund inflows into emerging markets including India. The current correction phase in the market can be best used to enter the market or shuffle your portfolio.
These are some methods to balance your investment portfolio:
Buying equity
Those looking to enter the market can identify scrips which have strong fundamentals and are favorably placed as per current economic conditions. The logic is that these stocks/sectors have potential to become outperformers during the next phase of the rally. Also these stocks would fall less in case the correction phase stretches further. However, it is not always possible for an individual investor to analyse and identify the stocks. Such investors can look for expert recommendations to understand various aspects of each potential investment. Accumulating the identified stocks in small quantities at regular intervals is better than buying the scrip in bulk at one time.
Shuffle existing equity portfolio
Every rally in the stock markets is dominated by certain stocks and sectors. These sectors given momentum to the markets. For example, the previous rally was mainly driven by Banking, Automotive and IT sectors. Usually, the momentum keeps shifting in the stock market from time to time based on the results, macro economic conditions and global conditions. The current correction phase is an opportunity to accumulate fundamentally strong stocks. However, since stock markets are driven by sentiments and expectations, it is advisable that investors should diversify a certain percentage of their investment portfolio into other instruments like debt-based instruments and commodities.
Here are some options to diversify an investment portfolio:
Bank deposits
The basic feature of bank deposits is safety of investor's principal amount, easy liquidation and accumulation of regular interest. Interest rates on bank fixed deposits are on a rise after the RBI's decision to tighten the monetary policy. Bank fixed deposits are best suited for short-term diversification planning.
Debt funds
These instruments are good options for risk averse investors. These funds invest in the debt based funds and government bonds and provide principal protection with decent return. These funds come without any lock-in like bank fixed deposit. These instruments provide quick liquidation and hence are idea for risk free short- to medium-term investments.
Commodity
Investment in precious metals has given very good returns and their outlook for short- to medium-term is quite good given the uncertainty at global level. Investors can look for investment in gold or silver through ETF or buying physical gold/silver coins from reliable shops and outlets. ETF (Exchange Traded Funds) are very much like mutual funds with gold/silver as the underlying asset. Various well-known mutual fund houses manage gold/silver-based funds. The units of these funds are easily traded in the market and therefore, it is quite easy for retail investors to invest, track and liquidate the investments.
