The nervousness among consumers and investors is evident. Home buying is being delayed, car sales are down and the festivities have not been too loud this year.
But there is relief. Unlike 2008, when things hit us within a few months, this time people have had more time to acclimatise. Consequently, it seems they are better prepared.
In the past few months, there were inflows into equity funds despite lacklustre market conditions. In August, September and October, investors put in almost Rs 3,500 crore in equity schemes. Similarly, gold sales were hit on the perception of it being too expensive. In the second quarter, gold sales were down 23 per cent, according to the World Gold Council. A very good sign, as it indicates that investors are willing to take risk and buy equities cheap, instead of following the herd when markets go up. Importantly, many are staying away from expensive investment avenues.
One isn’t sure whether the same trend will continue if markets fall further or gold continues to rise. According to popular sentiment, it could get worse in the new few months. Many feel the Sensex is likely to test the 13,000-level. There could be more companies facing earnings’ downgrade. Foreign institutional investors, who drive sentiment in Indian markets, are likely to remain jittery over crises in various parts of the world.
There are other indications too. Though pink slips aren’t being doled out in India, there are signs of slowing in recruitment. And, one could forget about fancy increments or bonuses. There could be salary cuts as well.
This will really test the Indian consumer/investor. But they need to keep the faith. Investing in equities, especially through mutual funds, will have to continue. Similarly, asset allocations (debt:equity) have to be maintained.
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There is a strong tendency to go for fixed deposits or fixed maturity plans or other fixed income instruments because they are offering better returns. But, moving out of equities and systematic investment plans (SIPs) will only hurt in the long run. The smart ones can even move profits from debt instruments and invest in equities.
But, all this will require one to believe in equities in the long run. Numbers show hey have outperformed all instruments over a long period. For instance, Franklin Templeton India Bluechip Fund has returned 23.6 per cent annually for the last 12 years (since November 1999). HDFC Growth has returned 20.3 per cent annually for the last 17 years (December 1994).
Even these schemes have suffered because of the recent uncertainty. For instance, HDFC Equity’s year-to-date returns are -23.36 per cent. There are many such schemes that are suffering now, but have performed strongly in the past.
A simple strategy in these times would be to continue investing in good schemes. If you have not started investing in equities, it may be a good time to do so through SIPs. This way you will get more units if the market falls further.
But, remember a few don’ts. Don’t look at high risk-high return propositions. Don’t go overboard on debt. Don’t look at themes which are looking hot... sometimes they get too hot to handle. Just buy good large-cap schemes and stay invested in these for at least five years. Isn’t difficult, is it?
