: Given the US economic slowdown and downtrend in the stock markets, what are the wealth management experts advising?
The US downturn has hit sentiment adversely. Diverse view-points are doing the rounds on the extent and time-span of the slowdown. Billionaire Warren Buffett reportedly said that the US was going through a recession, albeit not as bad as the 1970s. This, however, doesn't mean that it couldn't be...
Judging by past experience, housing declines by up to 50 per cent peak-to-trough and the correction lasts well over two years. This time around, housing has become extremely overvalued globally, rising by atleast 20 per cent and perhaps as much as 40 per cent. Hence, the cycle could be slightly longer.
Succumbing to pressure from customers, wealth management companies are looking for alternatives to equity. These include debt funds. Fixed maturity plans attracted investments that would have otherwise gone into equity, during the period up to March. Income funds are also beginning to regain favour on account of lowering interest rates globally. Gold is also a good counter-balance to equity.
Right Horizons follows a derisked model. We book profits when the markets are in an upswing and believe that a downswing is a good time to buy into diversified equity and equity mutual funds. We believe in the philosophy, 'It is not Market Timing, but time in the market' that helps create long-term wealth.
It is important that investors do not panic, but look at a long-term approach. Investments at a time when good stocks have fallen up to 50 per cent in value could do well in the long-term. Systematic investments are a good approach and someone who has an SIP should continue with the same.
What is the mood of the investors?
The sharp fall in the markets has changed investor sentiment dramatically. The Sensex has shed 27 per cent from its peak on January 10. Significant investor wealth has been eroded since the beginning of the year.
The equity market in Q4 FY08 has lost over 20 per cent, with average daily volumes shrinking 40. The equity investment component is definitely shrinking and investors are looking at safer, conservative options, with some even willing to pull out post- capital erosion.
What would be the time-frame for a buy call given at this moment?
The time-frame would be a minimum of 2 years as the market has already fallen. One would otherwise have a 3-year investment horizon, even if the investments were made at a market peak.
Are you losing clients given the current situation?
No. While there is nervousness, we have not seen any customer losses. We had booked profits when the markets did well, thereby protecting the capital of customers who started with us over a year prior to the fall. This allows us to use such falls to take advantage of the volatility.
What are the new trends in wealth management?
Many financial institutions and wealth management companies have launched structured products that provide capital protection, but only after the markets have fallen. They could have been useful at market highs. If the REIT (real estate investment trusts) regulations come through, we expect the real estate investments through financial markets to become a trend.
What are your concerns?
The government is expected to take extreme steps to contain inflation and this would impact growth. Our view is that governments cannot significantly increase the interest rates when global rates follow a downturn.
If the global economy goes into a recession, it could lead to a full 2-year downturn. However, the point of comfort is that even in a 2-year downturn, a significant part of the fall happens in the first few months.
