 "Has the market bottomed out?")
It has been bad news for equity investors all around. The recent stock market events have wiped out returns that investors made the past 18 months. Famous international investors such as George Soros and Jim Rogers are predicting an economic crisis going forward. Many are predicting a scenario as bad as or worse than 2008 for global markets.
However, experts say that long term investors don’t need to panic. When the Sensex crashed to 8,160 in March 2009 due to global economic crisis, it was back to 14,300-level two months later in May — a recovery of over 75%. Within seven months, it touched 17,300-level, or over 112%.
Opting out after losing money or ceasing investments is the biggest mistake that an investor can do.
Financial planners say that the best thing to do in a falling market is follow the asset allocation strategy. Say, your portfolio comprises 70% equity and 30% debt. Keep a margin of 5-10% for each asset. So, if equity allocation goes below 60%, replenish your asset allocation to maintain the balance.
A correcting market is a great opportunity to buy, say investment advisors. They, however, caution that one should not go into unchartered territories in such a market. There is more value in buying stocks that one is comfortable with and has the relevant information about the company. Don't buy a stock because it’s down by 50% in the past one month or it has gone below the book value. For all you know, it was up 100% in the month before that and is still expensive or the book value can erode further.
Experts see value emerging across the board — be it financials, pharmaceuticals, oil and gas. Businesses that cater to urban consumers are a great buy. In the infrastructure space, one can look at segments that could benefit from a rise in government spending. Those that will benefit from reduction in power transmission and distribution losses are also a good bet.
Those already in the market for over three years would be sitting on a profit. They should continue their investments as usual. If you have systematic investment plans (SIPs), continue with those because such corrections allow you to buy more units of a mutual fund scheme.
Investment experts believe among the bad news worldwide, there are still many positives for the Indian economy. For example, some auto companies have started seeing growth, indicating there's rise in consumption. The government spending on roads and railways is on rise. Corporate profits are getting better due to lower input costs. These may help to minimise the impact of developments in Chinese economy. But this doesn't mean everything is hunky dory. Experts say that there will be pain, as India will be impacted by global developments.
While the correcting markets give an opportunity to buy good companies at attractive price point, an investor should also use this opportunity to weed out bad stocks and mutual funds. But do keep the taxation in mind before selling. There's no tax if you hold equities for over a year, whereas selling it within 12 months attracts short term capital gains tax of 15% on gains.
This year, experts say that returns for investors won't be spectacular. So, if you don't want to take the risk with equities, financial planners say that individuals can use the money to reduce debt.
Suresh Sadagopan, a certified financial planner explains that many investors who feel that returns from equity will be lower than the interest their loan, say a housing loan at 10-11%, prefer to lower the debt.
And yes, stay away from the noise, as it will only deter you. Rather read use that time to read books on investing that can help you tide the current downturn, says Malhar Majumder, a certified financial planner.
