Dealing with your equity portfolio in the current market fall
The Indian stock markets are in a downtrend since November 8, with the BSE Sensex losing close to 1500 points since then. It is common knowledge that the key triggers causing this uncertainty and volatility are the Prime Minister’s demonetization announcement, followed by Trump’s victory in the U.S presidential elections. Though market pundits feel that this is just a short term trend and the initial reaction to the sudden news, it is hard to predict the market trend in the medium term.
So how does the common man/investor deal with the equity part of his investments in the current scenario?
- Direct Equity/ Investment in shares – If you have a well-diversified portfolio of stocks which has been picked based on sound fundamentals and professional guidance, relax! However tempting it may be to sell/book some profits when you see the prices fall a bit every day, do not panic. Stick to your long term strategy and the investment time frame. And for those who have a dormant portfolio equity portfolio invested long time back and not actively monitored, the earlier they sit up and take stock, the better. Irrespective of how the market is doing.
- Equity Mutual Funds – SIP investments work on the rupee cost averaging concept, so are not affected by market ups and downs .(see https://srirakshafp.com/2012/03/27/understanding-the-rupee-cost-averaging-concept/) . Lump sum equity investments should be given a time frame of at least 3 to 5 years to deliver the target returns. Those who have held on to their investments have benefited much more than those who have acted on impulse and tried to en cash their investments to salvage the remaining profits.
Here is how diversified equity funds have fared over the long term
|Category||3 years return (%) *||5 years return (%)*||10 years return (%)*|
|Pure Large Cap funds||19.84||15.95||10.92|
|Pure Mid cap Funds||35.9||23.58||16.02|
|Value Style Funds||27.78||20.31||15.32|
|Hybrid/Flex i cap funds||22.70||17.00||13.49|
*Average returns of the category per annum. Source – Bajaj Capital.com
This clearly shows that irrespective of the time of entry and the intermittent volatility those investors who have held on to their investments have never regretted.
- If you need cash or were planning to book profits – A falling market is surely not a good time to sell stocks especially to meet unanticipated expenses; which is why any competent financial planner or advisor will always advise his clients to have some cash in the portfolio for emergencies. And if you plan to redeem because the investment has generated the target return, do go ahead. Always stick to the investment strategy and financial goal.
- If you have cash to invest in equity – Thanks to the one week slide in the market, almost all the blue chip stocks are now available at a discount. Don’t miss this opportunity to buy fundamentally strong stocks at a bargain. A word of caution – do not get lured into investing in stocks which have corrected the most-that could also be because the business model isn’t strong enough or due to some adverse news or development in the company.