Consistency in investing is the key

Consistency in investing is the key

Passing through mid-points can be challenging for any economy. The reforms and rate-cuts of the recent past have still to take root. This transitioning implies that the recovery could be slow and gradual. As a result, we could see some choppiness and anguish in equity - a stage where it will
not be easy for short-term investors and traders. The economic pendulum is somewhere in the middle, and it will require some effort to move to the positive side of the arc.

The market's pendulum, however, has pulled back near the middle from being in a rich valuation zone about six months ago. In the short term, multiple challenges trouble the markets. First, there's a possibility that the US Fed could hike interest rates in December, and a source of further volatility and confusion. Earnings season has been a dampener by turning out much worse than anticipated, particularly in capital-goods space. This suggests that the investment cycle, which was expected to show signs of green shoots by now, will take longer to turn around.

Navigating a slower recovery

However, as the market's pendulum has swung to a fairly valued range, and in the favour of investors, it's time to accumulate once again. Exciting times could unfold for people ready to pour money into equities. To be sure, we are moving into a moderate return phase for equities in the next one year.

But consistency is the key to long-term investing success. A well-rounded portfolio is not built in a day. Investors have to constantly buy into the markets whenever there is an opportunity, and the opportunities come when markets either move sideways or correct.

The fundamental outlook, domestically, is still good. Indian corporate, however, need time to iron out issues of deleveraging and low capacity-utilisation. This could take about two-three years. Once the re-leveraging cycle begins, as it is expected to, beneficiaries would be investors who bought during the mid-point of this market cycle. Mutual fund investors have been investing in the markets. Equity oriented Asset allocation products and Systematic investing plans are seeing good inflows. Monthly investible amounts are being topped up. The good thing is that investors now know the advantages of buying during good and not-so-good times, particularly during not so good times.

Foreign investors have been selling except the last month when we saw inflows, but that's not worrisome. For investors who are showing investing consistency, the twin-advantage is that not only a transfer of assets is taking place to their portfolios, it's taking place at good prices. It will be worrisome if Indian investors don't grab this opportunity. History has proved that it's profitable to buy when foreign investors are selling.

The bright spots in the market

Cyclicals tend to gain the most in a rebound. Financial services, oil and gas, metals, capital goods, utilities and telecoms are well-placed in the growth cycle. Greater capacity utilisations and rising operating leverage could result in higher growth rates for these sectors. Defensives, such as pharma, have corrected recently; hence, stocks across the board here are not overvalued. Technology is reasonably valued as well, but the growth outlook for some companies is deteriorating.

Large-caps are better placed than mid-caps. Lately, foreign investors have been pressing the sell button primarily in largecaps, particularly in economic-sensitive ones, which people were counting on for a rapid recovery. That has made largecaps more attractive than mid-caps, where prices have
recently risen high.

Being consistent is the key

There are a few key strategies, if one gets right, can turn to big wins in the long run. It's worth re-iterating that assets may remain listless as developments, both domestic and international, affect sentiments in the short run. The first key, and one of the biggest, is to overcome the momentary pessimism that can afflict any of us, and be consistent with making investments over the next one year. The second key is to just grab the opportunity volatility brings. Prices tend to react adversely to any negative news. These are bargain moments. It's like buying good assets at a discount sale. Top up investments in equity funds or add lump-sums at good prices. If one is like everyone else buying only when prices go up, chances are you are missing out taking advantage of important moments in the market.

At present, physical assets are inferior cousins of financial assets. Property across the country has given poor returns. Gold is at a multi-year low in dollar terms.

Financial assets can give decent returns in coming years, and we expect to see further inflows into mutual funds as investors prefer financial assets over physical ones. So, in the present environment, to invest with a near-term view of one-three years, the hybrid and asset allocation funds present a better opportunity. With a longer view of three years and more, pure equity funds with a large-cap bias present a good opportunity."


With New Year around the corner,in addition to wishing for prosperity& good health, let's also work towards ensuring sound financial security.

Preparing a financial plan

Redefine tradition by gifting your loved ones a sound financial plan. Charity begins at home – so why not draw up a financial plan for yourself and your family. Seek professional help if needed and with this, secure your family's finances for the longer run.If we compare performance of equities vis-à-vis traditional investment avenues, as of October 2015, the S&P BSE Sensex has given returns of 15%, on a 20-year annualised, rolling return basis since 1979 vis-à-vis 8-10% returns from traditional fixed return instruments.

Identifying goals

Evaluate the time horizon and cost of each of the goals
Understand the risk profile
Allocate money across different asset classes (equity, debt and gold)
Review investment portfolio at least annually
Dip into mutual funds


Indians are typically known to invest in assets such as gold, property or traditional fixed return instruments – assets that either involve a large capital investment or could offer minimal returns when compared on an inflation-adjusted basis. Equity is an asset class that appears a viable long-term solution, especially for the youth.


A deeper analysis on returns offered by gold makes the message clearer. A sum of Rs 1000 invested in 1989 in the Sensex and gold indicates superior returns from equity. While investment in gold
grew by about 9 times, that in equity expanded by 35 times. For example, an investment of Rs. 1000 in gold may have grown to Rs. 9000 that in equity may have grown to 35000. (Source:Bloomberg)

However, investing in equity does call for some expertise in selecting stocks, portfolio diversification and risk management. These are skills that not all investors possessfor whom mutual funds then could become a viable alternative. Mutual funds allow investors to pick and choose schemes, as per his own criteria and thus, provide offerings across the lifecycle of an individual.

To elaborate, young investors can have a longer investment horizon, with fewer responsibilities and a greater risk appetite. This enables them to choose an aggressive asset allocation and invest in equity-oriented funds (diversified, large cap, small and midcap or thematic).Middle-aged persons, in comparison, have greater responsibilities, as they have to set aside funds towards their children's
education/marriage, care for dependant parents etc.

Given their moderate risk profile, they can choose hybrid funds - primarily balanced - or monthly income plans. Furthermore, persons in their sunset years (nearing retirement) need to invest in relatively stable instruments such as liquid mutual funds, short-term debt funds, fixed maturity plans, etc.Additionally, investors who have a fixation for gold can choose gold exchange traded funds (ETFs), which sets them free from the worry of theft.

Give an early start to financial literacy

Children usually associate the festive season with school vacations, chocolates, fireworks and fun. This New Year, lets also look at ways to instil in them, attributes of patience, discipline and good saving habits. To begin with, open a savings bank account for them and help them build a kitty. Further, gift them books, magazines and games that introduces them to the world of money matters.

Happy investing
Source:Moneycontrol.com