Avoiding portfolio panic

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: parameters discussed earlier. The broker's representatives also hinted at borrowing money to take extended exposures. After all, the cost of borrowing at 35% per annum in the grey market was much lesser than the gains from stock market investing.

So when the markets tanked, there was bound to be panic, says a portfolio manager with a multinational service provider. However, the panic was more at the short-end, where investors had committed around Rs 10 to Rs 15 lakh with portfolio managers. The bigger clients have not shown any panic. He further adds, "Bigger clients, with investments in excess of Rs 50 lakh to a crore have actually seen a portfolio gain of 5-9% even in this year, and going ahead, their gains will be stronger."

Old hat

And this is because of the good old maxim: diversification and long-term investing hold good. It was abundantly clear that remaining focussed on equities was not going to be as rewarding as it was in the earlier years. Rising oil prices, threat of an economic slowdown in the US, and its implications on India were being spoken of since the previous year. So it was imperative that a savvy portfolio manager took note of this and reacted accordingly.

Smart portfolio managers shifted a sizeable chunk to cash, by booking profit, which many did not. "We changed the asset allocation in favour of large-caps during January and February, and also raised about 20% cash that time, which has helped the portfolio" says Agarwal. Others diversified into commodities, especially into gold exchange traded funds. These funds have returned around 9-12% since the beginning of the year.

Then there are others who have also diversified overseas and made use of the opportunity offered by the government to remit around $200,000 overseas. "For a family of five, if the individual remittance amount is utilised, it creates a million-dollar fund, and this can be invested in strong portfolios overseas," says Bhatia. Devoting 10% of the portfolio to overseas investments might actually be a smart idea, he reckons.

Old lessons

When euphoria subsides, old lessons often come to the fore; quite the same with portfolio management services. One of these has been about being diligent. "I did not know that my money was being channelised into day trading activities," says Nikam. He would not have allowed this at all.