Investment strategies in current market

The sharp correction in equities over the past few weeks has shaken investors' confidence in the asset class.

Though the headline indices have tumbled over 10 per cent from peak levels, the fall in select individual stocks - especially in the mid-and small-cap segments has been much sharper.

With the portfolios bleeding, investors are now seeking safer options to park their money. With classical defensive plays like pharma, fast moving consumer goods (FMCG) and information technology (IT) sectors, too, feeling the heat in the correction, are bank fixed deposits (FDs) or other traditional investment avenues a good bet amid rising interest rates? 

The need of the hour, analysts say, is to take stock of the situation logically and then plan your investments based on how much risk one is willing to take.

Investment Strategy

For short-term needs, experts advise FDs or debt-funds. However, from a long-term perspective (5-10-year horizon), some allocation into equities is a must. Equities, as an asset class, will always play a very significant role in keeping the purchasing power of the savers intact because they tend to give better returns than the inflation, they say.

“According to a recent study, FDs have given only 0.30 per cent returns (adjusting for inflation) over the last 15 years, while equity has given 7 to 7.5 per cent. So, avoid the noise around correction. These corrections are healthy and it’s a good time to enter markets,” said Swati Kulkarni, Executive Vice President & Fund Manager at UTI AMC.

The key is not to put the lump-sum amount at one go but in a phased manner. For example, suppose you want to invest Rs 50,000 overall, then allocate 20-25 per cent of the fund initially in equities and then the rest 70-75 per cent through the route of STP (Systematic Transfer Plan). “That apart, SIPs should continue. It shows the discipline that you are building the corpus gradually,” Kulkarni added.

Sachin Shah, Fund Manager, Emkay Investment Managers agrees and suggests investors can start to make regular, periodic investments from a long-term perspective.

“This a very good time. Nifty50 is around 10,000 levels. Valuations have become very reasonable now after a year. So, from that perspective, it's a very good time to start doing SIPs in equity mutual funds. For high net-worth individuals, they should look at allocating a decent amount of money to the large funds, PMS or AIF," he says.

New investors, experts say, must understand that stock markets are highly volatile and this kind of market may really spook them. So, very small of exposure to equity and some exposure to very short-term funds like ultra-short fund or liquid funds, which still offer better returns than FDs, at this point of time would be a good strategy.

Vidya Bala, head of mutual fund research at FundsIndia recommends the mutual fund route rather than direct investment into stocks given the choppy and uncertain market conditions. 

“As far as funds are concerned, a mix of multi-cap and midcap funds would be an ideal strategy, to average and then continue with a SIP or STP between now and till the elections are over. This should be the strategy for existing investors,” Bala added.