What not to do now

The rupee's fall and slowdown mean you should avoid certain sectors and invest in a staggered way

On the one hand, the rupee has been tumbling since mid-May, as foreign investors sold Indian debt. On Tuesday, it hit an all-time low of Rs 61.39. The central bank's liquidity-tightening measures haven't helped curb speculation in the rupee. Don't expect the trend to reverse anytime soon.

On the other hand, the economy has been slowing. The Purchasing Managers' Index for July fell to 50.1 per cent. This indicates a broad tightening of manufacturing operations, as out put fell for a third consecutive month due to tough economic conditions and raw material shortages. In its recent policy review, the Reserve Bank of India (RBI) revised its gross domestic product growth estimate for FY14 from 5.7 per cent to 5.5 per cent. All this would impact your finances and investments.

There's fear the grim situation might linger for a prolonged period. Higher inflation for imported products such as oil is on the cards, RBI says. Besides, inflation has been high, 9.87 per cent in June. This reduces your money's purchasing power.

This would stress your finances. Already, many debt funds are in the red. Banking stocks have been impacted due to RBI's liquidity-tightening measures. A lot of sectors such as real estate and infrastructure are in the red. The stress is also showing on corporate balance sheets. In this environment, it's very important to position your investments in such a way that sectors and funds that hurt your returns are avoided.

So, what shouldn't you do in this environment? Among the very first things expert advise is you shouldn't panic or take hasty decisions, as this might simply increase your losses. Sanjay Sinha, founder of Citrus Advisors, says, "One shouldn't panic. When investors panic, they tend to exit an investment which turns a notional loss into a real loss." Also, investors should stick to an asset allocation plan. "Don't change your asset allocation plan because of all these issues, and avoid the noise and focus on fundamentals," Sinha says.

Next, one should start weeding out sectors that are most likely to be impacted. Avoid banking stocks till the uncertain environment around these subsides, as the economic environment could impact the non-performing assets of banks. Capital goods could also be avoided, as in this segment, order books have stagnated. Avoid companies that have huge import bills; these include companies in the oil & gas, fertiliser, chemicals, infrastructure, power and real estate sectors.

Mehraboon Irani, head (private client group), Nirmal Bang Securities, says: "About 90 per cent of the stock market is not doing well. Companies that have shorted their balance sheets with a lot of debt are not expected to do well. There are no fresh investments happening in the economy and even now, after the correction, investors should continue to avoid them."

With RBI's liquidity-tightening measures, interest rates might rise higher. Besides, foreign investors have sold Indian debt, pushing up the 10-year benchmark yield to 8.13 per cent. This is an uncertain environment for bond funds. So, for now, avoid long-term bond funds, as a further rise in interest rates could hit their net asset values.

Experts recommend investors should avoid making lump sum investments in the stock market, and instead, take a staggered approach to investing.