It's not yet time to hit the panic button

Long-term equity story intact; adding some more gold and debt instruments could prove fruitful in the short term

This Friday’s crash that saw many stocks sinking to their yearly lows has spooked retail investors. What’s worse, with no positive cues from the global markets, fears of a further fall are not being ruled out either. While retail investors are the first ones to press the panic button, are there options outside of the equity markets?

“In the current environment, many investors ask us whether debt instruments are a good option, given the high interest rates and the volatile equity markets,” says Pradeep Dokania, chairman, global wealth and investment management, DSP Merill Lynch India.

Though Dokania remains unequivocal in his opinion that long-term equity investors must stay put, the fact of the matter is that the last time the stock markets were euphoric was, during Diwali in 2010. The Bombay Stock Exchange’s benchmark index, Sensex closed at 21,004.96 on November 5, 2010. Since then, the market has remained listless with a downward bias — it has corrected by 17.61 per cent.

EXISTING INVESTOR:
Consider the past one-year returns. Both the Sensex and Nifty are down ,4.77 and 4.33 per cent, respectively.

While the existing investor has seen his portfolio value erode, getting out of the market right now, could be the worst strategy to adopt say market men.

“The selling which we saw on Friday was purely panic-driven. One must wait for the market to stabilise, giving it at least another six months before taking a decision,” says Sudip Bandyopadhyay, MD and CEO, Destimoney Securities.

He even cautions against dumping of ‘junk’ scrips at the moment, asking investors to hold on till this moment of panic passes and be patient. Investors should use a rebound in markets to get rid of such stocks and rebalance their portfolio with companies that have better fundamentals and growth visibility.

Ambarish Baliga, COO, of brokerage firm, Way2Wealth, says: “This is no time for short-term buying or investing in mid- and small-cap stocks whose shares might be pledged with lenders. In a falling market, remaining invested in these can be counterproductive.”

In tough markets, mid- and small-cap stocks typically do not perform well. Hence, it is not surprising that mid- and small-cap equity funds have also delivered negative returns of five per cent (on an average) in the last one year.

Certified financial planners are advising existing investments be made via mutual fund systematic investment plans (SIPs). “Investments in SIPs can grow from the cost averaging principle, only if investors forget about it for the next five years,” says financial planner Arnav Pandya.

NEW INVESTORS
Sure, market movement over the next two months will be slow. Yet, the silver lining is that it is a good window of opportunity to pick up good stocks.

Hemant Rustagi, CEO, Wiseinvest Advisors, feels investors waiting on the sidelines for a correction should enter the markets at this point. His advice: “Avoid lump sum investments and put in only about 30-40 per cent of your investible amount in diversified equity mutual funds at this moment since a further fall is not ruled out.”