Times are bad but keep faith

Investors should build their equity portfolio in times like these and even start a Systematic Investment Plan

If 2015 was a bad year for equities, 2016 isn’t promising to be better. Investors continue to make losses on investments.

The BSE exchange's Sensitive Index or Sensex has already lost 5.1 per cent since January 1, almost the same loss in percentage points as in 2015. The National Stock Exchange's Nifty has already fallen more than it had the past year. Even the BSE small-cap index is down six per cent, almost erasing the entire 6.1 per cent gain it made last year. The mid-cap index, down 4.6 per cent, has wiped out half the gains of last year.

The immediate outlook isn’t good either, as no one is willing to bet on how things will proceed in China, West Asia and other turbulent parts.

However, most experts believe it is a good time to invest in the stock market. Says Nilesh Shah, managing director, Kotak Asset Management Company: “A lot of good stocks are way cheaper than they were some time earlier.”

Agrees A Balasubramanian, chief executive officer, Birla SunLife Mutual Fund: “Investors should build their share in equities in this market through proper asset allocation and look at both large, mid and small-cap funds.”

It is also a time when one can do good stock picking and a perfect time to start a Systematic Investment Plan (SIP). Many individual stocks have done exceptionally well. While the Nifty is at the same level as in June 2014, a number of stocks have done exceptionally in the period. Around 10 have returned over 40 per cent. These include Maruti Suzuki (87 per cent) Lupin (83 per cent), Asian Paints (75 per cent), Bharat Petroleum (74 per cent) and Infosys (56 per cent). Investors or fund managers who have good exposures to some of these stocks have made good money.

Balasubramanian believes things will start improving in the second half of 2016. “We believe one good monsoon could change things substantially because it will lead to higher rural spending and things will start looking good for many companies.” He advises putting money in multi-cap funds.

In the past year when foreign institutional investors (FIIs) slowed their sales, mutual fund managers increased their holdings substantially. In 2015-16, FIIs were net buyers of shares at Rs 18,356 crore, whereas MFs invested Rs 72, 216 crore. In 2016, FIIs have been net sellers of Rs 3,436 crore as of Wednesday, whereas MFs have been net buyers of Rs 1,640 crore. Clearly, many fund managers are busy doing stock picking, though the market has been falling.

Market experts believe these are times when even the retail investor should use a strategy to buy, instead of running away or staying aloof, and hold on for at least two to three years.

A word of caution: While starting an SIP or buying a good stock is a great strategy, don’t go overboard when you see a mid-cap or small-cap stock which seems cheap. Focus on large caps mostly, invest small instead of in lump-sum, and things should be fine.