Investors must moderate their return expectations for the current year since market valuations are still trading higher
Indian equity markets, after touching an all-time high in January 2018, have witnessed a much-needed correction in the last couple of months. Until then the market was on a sustained run without a breather. While the market correction is healthy, it has been gripped with volatility following concerns over geopolitical tension and trade wars between the US and China that made investors fearful and many preferred to stay on the sidelines.
Rising crude oil price also added to the woes, spoiling investor sentiments with expectations that it would upset government finances and push up fiscal deficit. But these short-term events should not bother disciplined investors whose focus should remain on achieving long-term financial goals through systematic asset allocation.
Long-term track record
As such, it is always advisable to invest through mutual fund route as your money gets managed by professional fund managers duly backed by intensive research on the investment decisions. When selecting a mutual fund house, investors should look for one with a long-term track record, as over the years such a fund house would have encountered a number of market cycles and learned to navigate ups and downs.
Further, one should stay on track through Systematic Investment Plans (SIPs) which help the investors make consistent savings and also average their cost of acquisition made over time. However, with the recent volatility in the markets, many new investors in SIP (those who have started investing in the past six months) are seeing negative returns. While seeing the portfolio with negative returns does not bring delight, you as an investor must not worry much as the growth outlook for the Indian economy and therefore, the equity markets seems promising.
Volatility is your friend
Instead, you must realise that great investing opportunities also knock on doors in the disguise of such corrections. Such time is indeed a good time to get reminded of Warren Buffet’s investing mantra: Be fearful when others are greedy but stay greedy when others are fearful.
So, instead of getting worried about the loss in your portfolio in respect of your recent investments, trust your investing decision and stay invested for the longer term. Further, since the stock valuations have got to reasonable levels at least in the large cap segment, investing in such times can ensure great benefits to your portfolio.
As historical data suggests, the chances of negative absolute returns from the equity markets decrease as we increase the investment horizon. Rolling returns given by BSE Sensex across 1-6 year investment horizon since the year 1991 highlight the fact (see graphic). In fact, BSE Sensex has never given negative returns over a 6-year time horizon during the analysed period.
Moderate returns expectations
Going forward, the Indian markets may continue to exhibit volatility during fiscal 2019. These expectations are based on increasing interest rates globally, which are causing foreign money to get into perceived safe fixed income markets. However, amidst the minor hiccups in the domestic and global markets, there is much optimism in the markets. The recovery in the domestic corporate earnings is expected to catch up over the next 12 to 18 months. Further, with the economic growth numbers looking strong, long-term investment outlook continues to remain positive.
While the year gone by saw a great uptrend in the equity markets, investors must moderate their return expectations for the current year since the market valuations are still trading higher. However, the equity markets still offer a potential for higher returns as against traditional investment avenues. As such, investors may continue investing for their long-term financial goals, irrespective of the short-term volatility currently in the equity markets.
The writer is executive director & CEO, Reliance Nippon Life Asset Management