While present market uncertainty may influence decisions, one should maintain a long-term perspective, says Pooja Vora.
Pooja Vora | Monday, Nov 18, 2013, 10:47 IST | Agency: DNA
Where you invest at a given point in time reflects two things; your approach towards money management and the market condition prevailing at that stage. However, like most decisions in life, a proactive approach makes a lot more sense rather than reacting in haste when markets display volatility.
For instance, many individuals tend to ‘dump’ their positions in equities and shift investments to items like real estate when markets are down. Ironically, that is when one should be investing more and picking up shares of fundamentally sound companies that have scope for growth in future once the markets return to normal.
However, the good news is that Indian investors have gradually begun to show greater maturity when it comes to investments than they did earlier. As per the Equitymaster Investor Survey 2013, conducted earlier this year with over 16,000 respondents, investors no longer see stock market performance in isolation. When asked about the reason for disappointing performance of their portfolio, 24.3% respondents blamed global economic crisis. More importantly, 34.6% of the respondents believed that their own greed to earn quick results resulted in losses. Thus the understanding that one cannot take macro headwinds and stock valuations for granted came out clearly in the survey.
38.5% of the respondents said that stocks and equity funds formed the largest chunk of their portfolio. In fact even real estate (net of loans taken) ranked a tad lower at 34.7%. An overwhelming 65.7% of survey takers claimed that they wish to remain invested in their stocks.
More than 70% of the respondents were looking at a period of 3 to 5 years for BSE-Sensex to touch all time highs of 30,000 plus, something that is not impossible. Faith in long term investing and compounded returns from equities resonated in survey replies. Well informed, careful and disciplined investing can go a long way in helping more investors realise their wealth building targets the survey concluded.
Where should you invest in the current scenario?
Ashish Shanker Head – Investment Advisory, Motilal Oswal Private Wealth Management, points out, “The last three years have been extremely challenging for investors as equity markets have been flat with a few stocks doing well and a large set of stocks losing value. Fixed income investors have also been short changed as returns post tax have barely kept up with inflation.
Consumer inflation has been running close to double digits. As a result a lot of savings have been invested in gold and real estate as they continued to deliver good returns.”
“Reversion to mean is a very powerful concept in investing, as asset classes and markets tend to move in cycles. If one were to crystal gaze into the future and guesstimate as to which asset classes or securities would do well over the next 3 to 5 years the following thoughts come to my mind:
Equities: I believe government and private sector balance sheets in capital intensive sectors will continue to be stretched and face headwinds. Hence, I recommend investing in good quality companies which are in consumer facing businesses (FMCG, telecom, autos, retail banks) or have export earnings (IT, pharma). These sectors and companies will continue to do well and outperform. If one does not have the ability to pick stocks there are funds which can be looked at.
Duration Funds: With 10 year govt. bond yields close to 9%, funds which invest in long dated government and PSU bonds will do well over the next year as RBIs focus will gradually start shifting to growth and hence, it will ease rates which should lead to a rally in bonds in 2014. Investors with a one year time horizon should look to invest in gilt funds or dynamic bond funds.
Gold: Investors should continue to hold some gold in the portfolio as it provides a hedge against global volatility.
Avoid investing in residential real estate as prices have run up sharply and we could enter a prolonged consolidation phase.
Source : http://goo.gl/mw6bLb