Monday, September 2, 2013

"Should you buy in panic"?


- Do you feel that it is a winning strategy to invest when there is panic in the market? 

There is absolutely no doubt that Investors, especially, first time investors, who hitherto have zero exposure to Equity should make the most of the PANIC in the markets and cherry pick stocks in times like these. The challenge is, however, they would need a lot of courage to do so as they would be acting contrary to popular perceptions and trends of the day. If we borrow from the wisdom of the great Oracle of Omaha, Mr. Warren Buffet, he says, “Be Fearful when others are Greedy, and be Greedy when other are Fearful”. By reading the newspapers, it is amply clear that the currently investors are “Fearful” , so its safe to conclude that the time is right for the first time investor to take the plunge.

- What are the safeguards one should keep in mind ?

The question that now arises is how to make the choice for the winning investment.  The investors today are spoilt for choice. Depending of one’s investment goals, the ability to take risks, access to professional advise the investor could either invest through Mutual Funds or go the direct Equity route. The direct equity route would require a more hands on approach and more involvement on the part of the Investor as opposed to Mutual Funds. The investor should also consider the Systematic Investment Planning option, so as to give the best of Rupee Cost Averaging. Clearly the Investors should define investment horizon and have a disciplined approach. For the new investors, trading and speculative activities such as Equity or Commodity Futures and Options are not recommended, as these activities require considerable skill and personal involvement of the individuals. Needless to say, there lies a greater risk of losing the Capital.

-Given the current market scenario, What would be your suggestion to the investors?

- What is your short term and long term perspective on the market

In the short run it is very difficult, if not impossible to call the markets. In a situation where the economy is currently going through perhaps its worst crisis, it make the task even worse. Consider the following, our economy is faced with a rising Current account deficit, Weak Rupee (at its all time low), Risk of Spiralling Fiscal Deficit, Parliamentary logjam, Uncertainty caused by upcoming Election, Investor Confidence at an all time low and a falling Sensex, Fuel price hike, Inflation , slowdown of economy, Looming fears of a Sovereign Downgrade. With all these factors at large, they are enough to scare even the hardiest of Dalal Street veterans, but the one fact that investors can take hope from is that current valuations have factored in most of the above. While I’m not suggesting that the downtrend may not play out longer but now is definitely a time to Start. The Government seems to be biting the bullet, three important bills have already made it through. It remains to be seen if the reform oriented bills like pension and insurance see light of day. Once elections are announced , the pall of gloom that seems to be enveloping the markets currently, may well lift. Also we need to bear in mind that India, this year has had a good monsoon, and this will be the silver lining.

- Which sectors/companies  should one pick  in the current scenario

The favourites currently are Consumer Staples, Pharma and IT. But one must bear in mind that these sectors have been doing well and the stocks have reached high level and the valuations are perceived to be rich at the moment. What investors need to look at are low PE, Dividend paying companies with a reasonably good management in the mid cap space. But the lay investors needs to identify these under guidance from a professional. A much safe haven can be provided by large cap index based stocks that may not be doing the best today but over time will certainly add value to the investor portfolio. NHPC 52 w hi 29- lo 14.65 current 16, Asian Paints 52 w hi 524 – lo 361 current 408 , HDFC Bank 52 w hi 727- lo 528 current 570 & Larsen 52 w hi 1146 – lo 678 current  710 are few examples of such stocks.