Adopt varied strategies for investing across sectors, but after emergency planning.
Conventional market wisdom advises selling stock holdings when the markets are trending upwards and buying when those are heading down. However, given the overall gloom over the economy, with disappointing industrial production numbers, elevated food inflation and no certainty over how it would pan out, many may be wondering whether to follow the market gurus.
Certified financial planner Suresh Sadagopan votes in favour of the traditional wisdom. “Do not clamp if you have the gumption of long-term growth. There are lots of value picks.” He says individuals are either refraining from investing or doing so only in debt instruments. “But don't shy away from investing in equity, as there is an opportunity. At the same time, invest in a staggered fashion via a systematic transfer plan (STP),” he says.
| FOR STARTERS |
| * Don’t shy away from equities, avoid investing heavily in debt |
| * Invest through systematic transfer plan |
| * Look for value stocks |
| * Exit underperformers, if fundamentals do not justify |
| * New investors may wait, as markets can fall further |
| * Always have a contingency kitty |
According to Arun Kejriwal, director of Kejriwal Research & Investment Services, you will need different strategies for investments in different sectors. For instance, if you had invested in the fast moving consumer goods sector, you are likely to have made money and you could exit now. But, wait before you re-enter. At the same time, if you had invested in the information technology sector, you should remain invested to take advantage of the rupee depreciation (it has breached the 53 per dollar mark). Again, don’t further your investments in it, given the sector is under pressure to meet targets. Infrastructure should be exited immediately, as it has been a loss-making proposition and may not give positive returns any time soon.
Or, say you hold some small-cap stocks, consistently underperforming the market. You could cut these out of the portfolio, even if at a loss. Use the money to enter value stocks.
Experts say the question is how much loss you are ready to bear. However, this should not prompt you to invest only in debt instruments. Sadagopan suggests partially exiting debt-heavy portfolios to enter value picks.
Market experts are unanimous that markets will fall further from here. Hence, some believe you could also exit profit-making investments, as you may get better opportunities at a later date. But, new investors are cautioned to wait until the Union budget presentation, by when the market should be at more attractive valuations. A good time to start investing.
Parag Parikh of Parag Parikh Financial Services Advisors, differs. He says value investors should have sold in the bull run having enough cash to invest now. Only distress sellers would sell in this market. In that case, it is suggested you sell only short-term investments (around a year old). The capital loss on those can be set off against the profits on long-term ones.
Economic hitches will seem a blip if your goal is a year away, says Kartik Jhaveri of Transcend Consulting. All investments should be goal-linked. Just remember that investments made for the near term will have to be less risky instruments, as capital protection is prime. Those for the longer term can be put in riskier instruments like equity. “In the short term, looking at the uncertainty around Reserve Bank policy and that of interest rates, one should not invest in liquid and short-term bonds. One could, instead, look at bank fixed deposits, which are giving good returns,” he says.
In such times, it becomes even more important to have enough cash in hand. In case of any emergency, you may not be able to encash your entire investments, as it may disturb future planning. And, if the markets go down further, you won't get any exit point. Plus, if the economy continues to dwindle, there might be an impact on the job market sooner or later, making a contingency kitty indispensable. Therefore, ensure you have cash worth three to six months of mandatory expenses.
