One of the fundamental rules of investing is that past performance is no guarantee of future success. What few people realise is that the statement is true conversely as well. A below-par performance is not necessarily going to be a trend in the future.
A drop in the 30-share S&P BSE Sensex returns in the last one year has made many investors question the market, despite the market’s strong fundamentals. Here’s a look at how you can invest in this scenario, and whether you should keep investing in equity or look elsewhere.
Trust the fundamentals and stay invested
The one biggest asset every successful investor has is motivation to ride the tide. Calm seas have never made a sailor skillful. As the fundamentals of Indian markets remain strong, avoid knee-jerk reactions to sell off your investment in a bear run phase.
Take time out to reassess and reallocate your investment portfolio but always maintain stocks or investment instruments that are fundamentally strong. As a long-term investor, do not let momentary drops in investment dampen your spirits as the Indian markets are likely to deliver higher than expected returns.
Use the drops as buying opportunities
As an investment strategy, it is sensible to make active use of drops in the stock market. Drops can be good buying opportunities and help even out risks in your investment portfolio.
Selling your stock when it is low does not help you since you lose your invested money. Instead, consider buying more stocks when the prices are low to bring down your overall average price for the shares.
Diversify your investment to benefit from both interest rate drops and rises. Rules and regulations, interest rates etc. pertaining to financial instruments have undergone a sea of change and these changes can impact the markets one way or the other.
A drop in interest rates due to falling inflation and a drop in interest rates for small saving instruments, for example, have left many investors wondering where to invest their money. In an ideal scenario, your asset allocation should be done in such a way that you benefit both when the interest rates drop as well as when they rise.
Debt instruments have an inverse relationship with interest rates and should be a part of your investment portfolio. Consider fixed deposits as a good investment strategy even with the dropping interest rates. Did you know that fixed deposits managed to beat equities and gold investments in 2015? Although retail inflation in India and a global sluggish economy were factors in such a phenomenal rise for fixed deposits, it makes a case for not ignoring investments made in bank fixed deposits.
Focus on large caps
Recently, mid-cap stocks outperformed their more illustrious large-cap peers. While the success story of these mid-caps has been a good one, the strong fundamentals and markets under pressure would mean that large-caps are likely to offer better consolidated returns over a long term. Rather than running a mid-cap ‘short sprint’, train for and run a large-cap ‘marathon’.
Time investments with government policies
There are government policies being announced for various niche sectors. Make sure your investment is done in sync with your sector’s policies. By no means does this imply that you overlook the strong fundamentals of the company. Invest in a company which has the potential to bring about a positive turnaround using the favorable government policy.
Play it safe with MFs
If you do not have expertise in financial markets and investment strategies, it is better to go the mutual funds route at least till turbulent times are over. With mutual funds, you can invest via SIPs, while allowing experienced managers to take care of your investment rather than burning your hands in a tricky market situation.
Investment is a journey which has its ups and downs. Do not let the bleeding markets dampen your spirits—rather, make use of them and strengthen your long-term investments.
The writer is CEO,