Skip to main content

What to do in a volatile Stock Market?

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 


Volatile and uncertain markets have put investors in a dilemma whether to invest in equities or not. Staying away from equities is not a good idea because as and when the economy improves, you will not be able to ride on the wealth generated through the stock market. However, during volatile times, it is advisable to invest with caution and not aggression.

Currently, there is high amount of uncertainty in the stock market. Many stocks and sectors are seeing three or five year lows. Stocks in sectors such as banking, infrastructure, real estate, etc are seeing a phenomenal decline in prices. Are these low prices reason enough to buy stocks? Or should you avoid stocks as their prices could fall further? When the economy is booming, most of the stocks perform better irrespective of their business model or sector in which they operate. However, in times of slowdown, some stocks or sectors are affected much more than stocks in other sectors. This is due to the impact of factors such as interest rates, crude prices, fiscal measures, inflation, etc. However, certain sectors are less affected by the downturn. In capital market terminology these stocks are known as defensive stocks. Companies in the defensive sectors are those whose businesses are not dependent on general economic prosperity. Also, they have a competitive advantage in terms of brand, pricing power and low borrowings.

A stock like Marico or Colgate, for instance, which caters to personal care segment, will not see its business affected during a downturn considering the demand for such products will continue irrespective of the market or economic conditions.

The Information Technology sector, to some extent, is also a preferred sector. The sectors earnings are more insulated to the domestic economy and the companies benefit on account of depreciating rupee. This may be more so during a slowdown due to lower forex inflow, as foreign investments slowdown. The defensive sectors are FMCG, Pharma, Information Technology etc. (e. g. GlaxoPharma, Marico, TCS, Colgate, Bata etc.) Stocks in sectors such banking, infra, real estate, commodities, etc are best avoided now. These are interest rate sensitive, demand sensitive and the industries are cyclical in nature, which is why they are expected to see a decline. It is better to avoid them as they may cause further depreciation in your portfolio value.

Auto companies also would be impacted in a rising interest rate scenario, like we are seeing currently, or in an economic downturn as people will postpone their car purchases. Interest rate sensitive sectors like auto, banking and real estate and infrastructure would be the absolute opposite of defensive sectors.

Sectors such as realty, capital goods, metal have been worst performers if we track the three or five year returns. Stocks of Public Sector Undertakings have also been poor performers. One reason for this could be the government milking them to meet their fiscal deficit.

However sectors such as FMCG, Healthcare, IT have provided considerable returns even during a sluggish economy.

Identify defensive stocks:

Stocks can be identified as defensives based on parameters like the beta ( i. e. stock price change compared to the overall stock market change) of a stock and its dividend yield. Defensive stocks typically have a beta of less than 1. A beta of 1 means the stock price moves at the same rate as the overall market, whereas a beta of less than 1 would mean that the stock would move less than the market on the upside as well as the downside.

Further, the stock should have an attractive dividend yield (dividend yield is the current annual dividend divided by the stock price). It should also have a history of steady dividend payments. A dividend yield of greater than 3- 4 per cent on a consistent basis is highly appreciable.

Although these stocks create long term wealth at a lower risk, in a sustained bull run these stocks will underperform the market. When the market recovers it is the cyclical and high beta stocks that tend to outperform.

Also, many stocks within the defensive space are already trading at their fair valuations, given the steady increase in their price ( e. g. FMCG stocks). The best time to buy defensives is when there is a gloomy picture on earnings for manufacturing sectors, higher crude prices and higher interest rates. As the defensive sectors are less prone to the risks mentioned above they offer value in times of uncertainty.

So, if one is convinced that the market is going to remain bearish for along period of time, one can go ahead and buy good quality defensive stocks with low beta, low debt- equity ratios and high dividend yields.

Strategies your equity investment:

Equity investment always needs certain strategic planning. Unlike bank FD or fixed income instruments, in case of equities you need to have a proper plan and need to stick to the plan unless there is valid reason to deviate from the plan adopted. Most investors exit during downturn and enter when the market has peaked. Due to this they are not able to maximise their gain from the equity market.

Look at large cap companies: It is now clear that the economy will take some time to regain momentum. Slower growth rates, high inflation, high interest rates and rupee weakness may stay on for some more time.

Large companies will be in a much better situation to tide over the slower growth than the small or mid cap companies. It is best to stick to largecap stocks in the coming months.

Even within the large- cap space, you must be careful while picking stocks and sectors. Metal stocks for instance may be in for an extended downturn because of falling commodity prices. Diversify: The infrastructure sector has been badly beaten, but analysts expect it to do well when the economy revives. It is a good time to start looking at infrastructure stocks at these beaten down levels. But spread your bets across a basket of stocks and sectors.

Have a Systematic Investment Plan( SIP):

In case you have a SIP plan, do not think about terminating it at this point. If you stop now you will effectively turn down the chance to buy more at lower prices. The markets are down, but there is no knowing where the bottom is. Those who do not have an SIP, should go for the same. To avoid buying high, invest in monthly installments. In this manner, you will be able to gain the advantage of the rupee- cost averaging that the SIPs offer.

Defensive approach and adopting the right strategy can help cushion the impact of volatile market. Do invest in equities even during uncertain times, but with caution.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

What is Financial Freedom?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)     There were many things common between our Freedom fighters. All had the Single vision (Free India), common goal (independence) and had a disciplined and focused approach. They were ready to do anything and everything and had made so many sacrifices to see India free . But the road to freedom was not easy .They had faced lot many hardships, went to jail so many times and even confronted physical and mental torture from the British. There was one more thing which proved to be an advantage to our fighters that most of them were professional lawyers. The knowledge of legal issues and its impact on our country at large has helped them counter various bills and proposed new laws by the then government. It is due to their continuous effort that we are able to achieve the goal of Independent Indi...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now