New Delhi: The retail investors have not yet recovered from the 1995 shock, delivered to them by the big bull, Harshad Mehta. After five years, they are still wary of putting their hard earned money into the stock markets. The reason, uncertainty and volatility has been a permanent feature. Markets have been totally at the mercy of the speculators, both local and foreign.The foreign institutional investors (FIIs) have increasingly been dominating the bourses. The last few days have seen the FIIs aggressively offloading in select scrips. They have sold to the tune of Rs 1239.7 crores between October 11 and 17. Their growing clout, along with the listing of Indian companies on foreign bourses, has made the Indian stock markets more open to the worldwide trends, lending higher volatility and uncertainty. And since the FII flow is uncertain and high in volumes, it increases the volatility.
So what should a retail investor do?According to the Finance Minister, Mr Yashwant Sinha's comments at the economic editors conference, "It (investment in stocks) is a long term game. If you see the stock market performance in the long term, it has given more profits than (investments) in other sectors." The retail investors should invest for about two to five year period. This nullifies the effect of short term movements and volatility.
The presence of speculators is vital for the markets, since it allows higher liquidity and helps in effective price discovery. But excess of it is bad. This is currently being felt by the Indian bourses, due to excess volatility and low confidence of the retail investors. Last year saw the retail investors enter the markets largely through private mutual funds, but due to intense competition and thirst for high returns, these funds created huge positions on new economy, specially IT stocks. With the sector loosing its shine and stock prices nosediving, these funds saw their NAVs crash, and more importantly, lost the faith of the investors.
The retail investors may book profits, only if they hold on to their stocks for longer periods. They can pick up scrips with low price, strong fundamentals and potential for growth over the period of two to five years. At current valuations some of the stocks, specially in the old economy sector, stand at their 52 week lows. Some of them even quote below their book values. The time is right for picking up such stocks, with a long term investment objective. For the retail investors, time in the market is more important than timing the market.
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.