 "An equity push to your portfolio")
For the last four to five years, ever since he started working, Deepak Mishra has been investing in recurring deposits, providend fund and insurance. He had heard several stories from his senior colleagues about the losses they made on their stock market investments. But now the same colleagues are talking about stock markets and sharing investing tips on companies. While Mishra also wants to try his luck with equities, he is not sure how to do it. He is also wondering if he should invest directly in equities or go for mutual funds.
With basic knowledge in stocks, investors can create and manage their own portfolios and invest in equities for short-, medium- and long-term targets.
In 2008, when the markets were bleeding due to the global slowdown and most mutual funds were in the negative, there were a few sectors which did better than others. Post the Lehman crash in October 2008, the most affected sectors were realty, metals and media, all declining more than 70 per cent. However, realty and metals sectors moved up much faster than other indices. By October 2009, metals had seen a rise of about 240 per cent and realty had risen by 172 per cent. The auto sector had gained by over 170 per cent, having gone down by a comparatively moderate 57 per cent during the downturn.
Therefore, stocks from these sectors should definitely form part of your portfolio (see table).
Apart from these sectors, a must-have in your portfolio are stocks of companies in infrastructure, banking and energy. With the government focused on these sectors, these stocks are expected to do well. The growth in infrastructure is likely to be enormous with funds of Rs 2,250 crore being deployed for strengthening this space as stated by the finance minister in the Budget.
The Budget was positive for energy and banking sectors, too. This can be seen from the Rs 1,000 crore that was allocated for the solar power industry and the announcement to raise capital through dilution of shares in state-owned banks.
With so many stocks in each of these sectors, how can one select stocks which would give decent returns? A simple way to do that is to select top stocks from the top funds - from both sector-based and diversified funds.
For example, if your risk appetite is high, then an ideal stock selection would be the top two stocks from a top fund in the banking sector. Select the top two stocks each from a growth fund comprising energy and metals sectors, one stock each in infrastructure, auto and realty and top two stocks from the top pharma fund. Increase the percentage of pharma stocks in your portfolio in case you are risk averse.
With Nifty gaining from 5,400 in April 2013 to over 7,500 in May 2014, various other indices have also performed well in this bull run.
The graphic above depicts the rise in these indices. Stocks from these indices can also form a part of your portfolio based on the risk and the return that you expect. Small-cap stocks give better returns when markets are bullish, but they are the first ones to fall when the market corrects. You may include small-cap stocks as per your individual target and expectations.
The value and performance of your portfolio can be tracked with actual share prices rather than Net Asset Value (NAV) at the end of the day as in the case of MFs. The number of stocks can be increased or decreased depending on your risk appetite. Stocks can also be shuffled based on performance without any restriction and you will have complete control of your portfolio on a daily basis.
Another advantage of creating your own portfolio of stocks is the payment of dividends and bonus shares. As a shareholder you would be eligible for bonus shares and dividends declared by the company which will be credited to your account directly. As an MF holder, dividends are received only if the fund declares a dividend and not when an individual company declares it.
By becoming a fund manager for your own portfolio, you will be able to make returns based on the actual stock movement without having to pay distribution costs and expenses. In an MF, this is passed onto investors by the fund house.
With basic knowledge in stocks, investors can create and manage their own portfolios and invest in equities for short-, medium- and long-term targets.
In 2008, when the markets were bleeding due to the global slowdown and most mutual funds were in the negative, there were a few sectors which did better than others. Post the Lehman crash in October 2008, the most affected sectors were realty, metals and media, all declining more than 70 per cent. However, realty and metals sectors moved up much faster than other indices. By October 2009, metals had seen a rise of about 240 per cent and realty had risen by 172 per cent. The auto sector had gained by over 170 per cent, having gone down by a comparatively moderate 57 per cent during the downturn.
Therefore, stocks from these sectors should definitely form part of your portfolio (see table).
Apart from these sectors, a must-have in your portfolio are stocks of companies in infrastructure, banking and energy. With the government focused on these sectors, these stocks are expected to do well. The growth in infrastructure is likely to be enormous with funds of Rs 2,250 crore being deployed for strengthening this space as stated by the finance minister in the Budget.
The Budget was positive for energy and banking sectors, too. This can be seen from the Rs 1,000 crore that was allocated for the solar power industry and the announcement to raise capital through dilution of shares in state-owned banks.
With so many stocks in each of these sectors, how can one select stocks which would give decent returns? A simple way to do that is to select top stocks from the top funds - from both sector-based and diversified funds.
For example, if your risk appetite is high, then an ideal stock selection would be the top two stocks from a top fund in the banking sector. Select the top two stocks each from a growth fund comprising energy and metals sectors, one stock each in infrastructure, auto and realty and top two stocks from the top pharma fund. Increase the percentage of pharma stocks in your portfolio in case you are risk averse.
With Nifty gaining from 5,400 in April 2013 to over 7,500 in May 2014, various other indices have also performed well in this bull run.
The graphic above depicts the rise in these indices. Stocks from these indices can also form a part of your portfolio based on the risk and the return that you expect. Small-cap stocks give better returns when markets are bullish, but they are the first ones to fall when the market corrects. You may include small-cap stocks as per your individual target and expectations.
The value and performance of your portfolio can be tracked with actual share prices rather than Net Asset Value (NAV) at the end of the day as in the case of MFs. The number of stocks can be increased or decreased depending on your risk appetite. Stocks can also be shuffled based on performance without any restriction and you will have complete control of your portfolio on a daily basis.
Another advantage of creating your own portfolio of stocks is the payment of dividends and bonus shares. As a shareholder you would be eligible for bonus shares and dividends declared by the company which will be credited to your account directly. As an MF holder, dividends are received only if the fund declares a dividend and not when an individual company declares it.
By becoming a fund manager for your own portfolio, you will be able to make returns based on the actual stock movement without having to pay distribution costs and expenses. In an MF, this is passed onto investors by the fund house.
The author is, Director, WealthRays Securities