Charge of the bear brigade

MARKETS AND YOU

The sharp decline in the markets has thrown up opportunities for new entrants. For the fully invested, it's time to take a holiday.

Since January 15, 2008, stock market investors have been on tenterhooks. A sharp decline from 21,000 points to 15,500 points within two months would have wiped out profits of many investors.

Also, while the Union Budget provided sops for individuals through hikes in the basic exemption limit, it has dampened the spirits of traders and high net worth individuals who trade a portion of their portfolio, by hiking the short-term capital gains from 10 per cent to 15 per cent.

Obviously, there is a lot of despair all around. In fact, things have been so bad that no one is willing to stick his neck out and say if the market has bottomed out. For the retail investor looking for some direction, these are bad times.

As far as the market outlook goes, most experts feel that there is more pain for investors. This is because the market does not seem have bottomed out and there is more scope for a slide.

A fall of 10 per cent before fourth quarter corporate results is not ruled out. Also, expect another 5-10 per cent fall, if corporate results are not good in April.

At this point in time, negative sentiment has taken over the Indian stock market. As a result, even good news is being ignored. Of course, the turbulence in the market can be blamed more on affairs that are happening abroad such as the impending US recession and high crude oil prices.

And India, being a part of the global integrated economy, is facing the jitters. Investment experts say that the best way to take advantage of a strong downside is to buy.

Consider this, the current Sensex levels are at around 15,500 points. "Assuming that in financial year 2008-09, the earnings per share (EPS) of Sensex stocks will be in the band of 1,050-1,090, we are at price-earnings (P/E) multiples of around 14 "�14.5 times. This is certainly good considering P/Es were in excess of 22 times in January 2008," says Sandesh Kirkire, chief executive officer, Kotak

Mutual Fund. In other words, valuations have certainly come down and become more attractive in the last two months. However, every downside has an upside as well.

Adds Kirkire, "Considering the current market levels, we would recommend investors to selectively enter the market, but with a long-term horizon of over 12-15 months' time frame."

This is especially true for the newbies, who have not entered the market yet. They can consider this fall as a godsend and create a portfolio.

Says D Sundarajan, investment advisor, "Though, a further downside cannot be ruled out, this fall provides a good opportunity for those sitting on cash."

Accordingly, the advice is that you could invest 20-25 per cent of cash on each fall. Arun Kejriwal, director, Kris Securities is more conservative. "It would be a good idea to invest 10 per cent on every bad day, such as, last Thursday," he adds.

But for those who are already in the market, things are not looking so good. This is especially true if you are someone who has entered the market late by seeing the buoyancy in September and October.

"If you are fully invested in the market already, taking a two-month holiday would be a better idea," says Kejriwal. The point here is simple. There is no way out for the existing investor. So, it's best if you forget the market for the time being.

For investors, who are stuck with mid- and small-caps, the story stays the same. The only addition, there is no time span that anyone will give regarding their fate.

"Selling will be very difficult in such conditions. Investors can only hope that things will improve in the days to come," says another financial expert.

The only thing that investors, who have booked profits before December, 2007 and entered the market afresh, can do is book losses in the last week of March.

"This will reduce their tax liability," adds Sundarajan. That is, the profits you made till December will get offset by that much due to the losses, thereby reducing your tax outgo.

As far as moving to debt goes, it is dependent on the individual's risk-taking ability. Most advisors would say that once you have done your asset allocation, it is wiser to stick with it. It is also important because your financial goals are linked to the asset allocation and tinkering with it will only complicate your finances in the long run.

Also, investors in mutual funds through systematic investment plans (SIPs) should not stop their regular investments. This is because a slip of this magnitude only helps them to add more units in their kitty. When the market improves, these units will bring them better returns.

Most investors will have to take a stand, a very difficult proposition in the current market conditions.

Either stick around or enter now are the only options available, exit per se, unless for tax purposes, does not appear sensible.