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

Mutual Fund Review: Taurus Tax Shield

    Taurus Tax Shield has seen a turnaround in performance since 2007, but still remains a volatile offering… The fund has seen a turnaround in its performance since 2007 and has delivered impressively during market rallies since then. The portfolio is also more diversified. It contained its downfall to an average level in 2008 but is still one of the most volatile offerings in this category. Bold investors can look at this fund.   Strategy The fund manager invests across the market capitalisation and sectors. The selection of stocks is made on the basis of long-term business prospects and value creation. Fund Insight Launched in March 1996, the fund was a laggard with just two annual outperformances. Concentrated stock bets and high exposure to mid and small caps led to it being hit harder during market downturns. The number of stocks in the portfolio never exceeded 20 and it was not rare to see the top 5 holdings account for around 60 per cent of the portfolio. After b...
Read more

Mutual Fund Review: HDFC Mid-Cap Opportunities Fund

LAUNCHED in June 2007, HDFC Mid-Cap Opportunities Fund was started as a three year closed-ended scheme. It was subsequently converted into an open-ended scheme in June 2010. The fund has been ranked as Crisil Fund Rank 1 in the small & midcap equity category according to Crisil Mutual Fund Ranking methodology over two of the last four quarters and has been present in the top 30 percentile in the category for all the four quarters. Crisil Mutual Fund Rank 1 funds form the top 10 percentile of the ranked universe representing very good performance vis-à-vis category peers. The fund, managed by Chirag Setalvad, has assets under management of ` 1,275 crore as of April 30, 2011 and has outperformed its peers and the benchmark (CNX Midcap Index) in the 1, 2 and 3 year time frames. INVESTMENT APPROACH The fund's objective is to earn capital appreciation by investing in equities of small and mid cap companies. While these companies have a higher return potential than large cap ...
Read more

NRIs and direct taxes code (DTC)

DTC Proposes To Do Away With Special Provision That Allows NRIs Liberalised Duration Of Stay In Country      THE new direct taxes code could bring a large number of global Indians under the tax net, as it does away with a provision that allowed individuals to escape tax in any country citing double tax avoidance.    The new legislation, introduced in Parliament on Monday, says an individual shall be a resident of India in any financial year if he is in the country for more than 59 days in that year, and has been has been India for more 365 days in four preceding financial years. A number of Indian industrialists including Vedanta's Anil Agarwal and Essar's Ravi Ruia have acquired non-resident status over the years.    The DTC has only attempted to clean up the provision in line with the laws globally. A phrase "being outside India" in the existing income tax law exempted individuals who stay outside the country for six months from paying taxes. This was prone ...
Read more

Tata Fixed Income Portfolio Fund dividend

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)       Tata Mutual Fund has announced dividend under the dividend option of Tata Fixed Income Portfolio Scheme B2 Plan A-DQ, Tata Fixed Income Portfolio Scheme B2 Reg-DQ and Tata Fixed Income Portfolio Scheme B2 Direct-DQ. The record date has been fixed as August 29, 2013. 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 Onlin...
Read more

Stick to Good Fund Manager who Can Multiply Your Investment

A manager may be the difference between the best and worst funds. Here's how you can find the right one    Does a mutual fund manager make a difference to your investment? The answer may not be as easy as you think, since most best-performing mutual funds have moved away from individualistic fund management to process-driven methods, limiting the scope of an individual's role in investment decisions. In fact, many fund managers would speak at length about how the "system" their fund house has in place makes their task of picking stocks easy even though it restricts their freedom. Still, the question is important, especially after recent reports that the Securities and Exchange Board of India ( Sebi ) may ask fund managers to disclose to investors their track record of managing money. Let us take a look at the universe of large-cap funds over the past five years. According to Value Research, an independent mutual fund tracking firm, the topper in the category is DSP...
Read more
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