Though the stock market is on a slide, disciplined investors need not worry if they go for value picks
The US bailout package was expected to cheer the market. Many investors were hoping that it may give a fillip to the market sentiments world-over. However, no such luck for investors on Dalal Street. Most market participants believe that foreign investors are likely to withdraw more money from the market. They also believe that the credit crisis in the US is far from over and it may soon lead to a global recession.
The bailout package is not the end of our woes It is still not clear what will happen next. Investors have to be patient for some time
So, are we really looking at the end of capitalism as some doomsday experts predict? Will the US financial crisis lead to a prolonged global recession? The economic slowdown in the US and Europe is a reality But to think that the stock market is never going to recover is illogical. The market will definitely rebound, but when that will happen is anybody's guess. The market may perk up for a day or two, but it is likely to see further lows as most people would try to sell their holdings at every upturn.
What do the experts think of the domestic markets? Do they believe the fundamentals are still strong to bet on? Of course, the valuations are compelling now, compared to what they were when the market was at its peak nobody is going to look at the ratios when there is uncertainty all over the world. However, there will be pleasant surprises in the next quarterly results. There is already good news on the inflation front. The drop in global crude prices and metals would drag inflation further down. Last week's data showed that inflation has fallen below 12 percent for the first time in two months.
What should be the strategy for individual investors? Experts are unanimous that you should book profits if you have invested in stocks directly and made some money on them. 'Sitting on cash' seems to be the way for many prominent market players. And they are waiting for a clear trend to emerge before returning to the markets. They say individual investors can also employ the same strategy. But there is one small hitch. These are for people who are confident of timing the market, which most know is a very difficult game.
That was for people who made some money on their investments. What about people who have made losses. Should they cut losses now? Most investment experts advise against cutting losses. If you have invested in quality stocks, cutting losses at this juncture would be a bad idea. The market is already down by over 40 percent since the last one year. It would be worth it to wait for a while. The same rule applies to mutual fund investors too. He bases his advice on the fact that the domestic economy still has potential and once the global financial woes settle down, we may see the market revival once again.
The same applies to investors who are investing in mutual fund schemes via the systematic investment plan (SIP). Stopping a SIP because the market is down defeats the whole purpose behind the idea of investing regularly. You are investing regularly because you don't want to time or take a call on the market.
Now, what about people who like to fish for attractive picks in a falling market? Investors should slowly accumulate large-cap stocks with attractive valuations. Foreign investors are selling large cap stocks due to the liquidity crunch. The trend is likely to continue. Investors should make use of the opportunity and pick stocks purely on attractive valuations. This strategy is for you if you have the patience to wait for at least one year, as the market is likely to be volatile in the next three to six months. What about people who are sitting on cash and would like to earn some money on it before investing in the stock markets on a regular basis?
Investors can park their money in liquid funds or floating rate funds and opt for a systematic transfer plan (STP) to invest in a well-diversified equity fund. They should look at the performance of the scheme in the last three to five-year period to choose a scheme.
Strategies for individual investors
• Book profits if you have made money on your investments
• Sit on cash and wait for a clear trend before re-entering the market
• Don't panic and cut losses if you have invested in quality stocks
• Don't stop your systematic investment plan
• Don't invest a lump sum amount as the market is likely to go down further
• Try to accumulate large cap stocks with attractive valuations gradually
• If you have large amounts to invest, park them in liquid or floating rate schemes and use the systematic transfer plan to get into the market
• Lastly, don't enter the market if you can't wait for at least a year
The US bailout package was expected to cheer the market. Many investors were hoping that it may give a fillip to the market sentiments world-over. However, no such luck for investors on Dalal Street. Most market participants believe that foreign investors are likely to withdraw more money from the market. They also believe that the credit crisis in the US is far from over and it may soon lead to a global recession.
The bailout package is not the end of our woes It is still not clear what will happen next. Investors have to be patient for some time
So, are we really looking at the end of capitalism as some doomsday experts predict? Will the US financial crisis lead to a prolonged global recession? The economic slowdown in the US and Europe is a reality But to think that the stock market is never going to recover is illogical. The market will definitely rebound, but when that will happen is anybody's guess. The market may perk up for a day or two, but it is likely to see further lows as most people would try to sell their holdings at every upturn.
What do the experts think of the domestic markets? Do they believe the fundamentals are still strong to bet on? Of course, the valuations are compelling now, compared to what they were when the market was at its peak nobody is going to look at the ratios when there is uncertainty all over the world. However, there will be pleasant surprises in the next quarterly results. There is already good news on the inflation front. The drop in global crude prices and metals would drag inflation further down. Last week's data showed that inflation has fallen below 12 percent for the first time in two months.
What should be the strategy for individual investors? Experts are unanimous that you should book profits if you have invested in stocks directly and made some money on them. 'Sitting on cash' seems to be the way for many prominent market players. And they are waiting for a clear trend to emerge before returning to the markets. They say individual investors can also employ the same strategy. But there is one small hitch. These are for people who are confident of timing the market, which most know is a very difficult game.
That was for people who made some money on their investments. What about people who have made losses. Should they cut losses now? Most investment experts advise against cutting losses. If you have invested in quality stocks, cutting losses at this juncture would be a bad idea. The market is already down by over 40 percent since the last one year. It would be worth it to wait for a while. The same rule applies to mutual fund investors too. He bases his advice on the fact that the domestic economy still has potential and once the global financial woes settle down, we may see the market revival once again.
The same applies to investors who are investing in mutual fund schemes via the systematic investment plan (SIP). Stopping a SIP because the market is down defeats the whole purpose behind the idea of investing regularly. You are investing regularly because you don't want to time or take a call on the market.
Now, what about people who like to fish for attractive picks in a falling market? Investors should slowly accumulate large-cap stocks with attractive valuations. Foreign investors are selling large cap stocks due to the liquidity crunch. The trend is likely to continue. Investors should make use of the opportunity and pick stocks purely on attractive valuations. This strategy is for you if you have the patience to wait for at least one year, as the market is likely to be volatile in the next three to six months. What about people who are sitting on cash and would like to earn some money on it before investing in the stock markets on a regular basis?
Investors can park their money in liquid funds or floating rate funds and opt for a systematic transfer plan (STP) to invest in a well-diversified equity fund. They should look at the performance of the scheme in the last three to five-year period to choose a scheme.
Strategies for individual investors
• Book profits if you have made money on your investments
• Sit on cash and wait for a clear trend before re-entering the market
• Don't panic and cut losses if you have invested in quality stocks
• Don't stop your systematic investment plan
• Don't invest a lump sum amount as the market is likely to go down further
• Try to accumulate large cap stocks with attractive valuations gradually
• If you have large amounts to invest, park them in liquid or floating rate schemes and use the systematic transfer plan to get into the market
• Lastly, don't enter the market if you can't wait for at least a year
