MARKET OUT LOOK
When market was going up steadily from 31,000 levels investors felt they were left out. They were wanting to invest in stocks at lower levels. Hence they were waiting for a correction . After hitting a high of 36,443 sensex corrected to 34,413 after the budget. Investors are however worried about the market volatility. Reason for the fall can be many; while first day fall every one attributed to budget later on it proved to be Global sell off. This happens regularly whenever market runs up too fast and too soon. We need to check whether sensex run up is justified?
How to check whether market run up is fast ? If we look at the valuation we know for sure market run up is too fast. When we don’t have the backing of valuation certainly sensex run up is not justified. If valuations are reasonable then we can say sensex run up is justified. Greater returns will always have greater risks. Investors never learn from their past mistakes. Never try to do day trading thinking you have mastered the art of trading. There is always risk in day trading. Market however provides individual stock picking opportunities even when index looks fully priced. Hence it is the skill which can make the difference.
Again if we look at the liquidity we find too much money has chased the stocks resulting in market going up. When Mutual Funds and FII poured money fast in to stock market sensex started running up. Again Global liquidity and Global market run up aided our market also to go up. This is despite seeing healthy Mutual Fund collection month, on month; we are getting close to $ 1 Billion in Mutual Fund as inward collection per month which is unthinkable few Years back. Now through systematic Investment plans Mutual Funds are able to collect $ 1 Billion every month. When so much money enter the market certainly market will go up. But due to global fall FII’s sold shares and hence there was a fall in our market. Investors strategy is important while investing in the market. Investors should realize equity is a risky asset class and returns are neither assured nor guaranteed. We always say only portion of our savings should get in to stock market investing.
What can investors do now?
Don’t be over confident; I have seen many investors throwing caution to the wind. Investors especially few were over confident and felt market can only go up. They were not bothered about asset allocation and bought shares at higher levels.
There is no doubt we are in bull market. But we need to be cautions at every stage. Next, don’t think returns can be 30-40% Per Annum. It is not possible to get returns like this year on year. I find few investors chase returns and jump from mutual fund to Equity and to PMS services. It is better to aim for a stable return. It is time to look at our Asset Allocation process. Indian Market continues to be expensive especially mid & small cap being highly over valued; earnings once in place we will find valuation catching up . Hence it is better to allocate some money in to debt funds and have a reasonable expectation from port folios. See how inflation figure moves. Rising global yields and oil price increases are a cause of worry. Hence there are some tail winds.
Still we know Indian Equities will do well in the next 18 Months. Investors need not take any action in panic. They should stay put and review their portfolios at regular intervals. Investors should be told about the new capital gain provisions which has been introduced in the recent budget.
Indian savers especially retail investors have just moving in to financial assets. They have reduced their dependence on Gold and Real Estate. Hence it is time for them to look at their asset allocation for more seriously. While it may be a good idea to look at equity as an asset class to get appreciation still depending on equity for monthly returns may not be a good idea.
Many savers have shifted from Bank deposits and post office deposits to balance fund for getting monthly returns. Since there is risk and uncertainity in equity we should never rely too much on this. We need to take measured risk and never try to be over ambitious while investing in stock market. Equity as an asset class will do well provided you are patient and have a long term out look.
Are we informing investors the risk element involved while investing in Balance Funds? This is an aspect we need to consider. As long as going is good investors will never say anything. But if Dividends fall for some reason then what happens? Are they ready to understand the nuances of Equity investing.
I can conclude by saying equity as an asset class will do well but the returns will never be same like fixed income investing. We will continue to see market volatility going forward for which investors should be prepared.