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Ride the bull, safely

Belying earlier projections of a hung verdict, the decisive mandate for the UPA has at least resurrected the most important factor that drives markets — investor sentiments. The Sensex has risen 25 per cent since the election results were declared.

delhi Updated: Jun 14, 2009 23:07 IST
Sandeep Singh

Belying earlier projections of a hung verdict, the decisive mandate for the UPA has at least resurrected the most important factor that drives markets — investor sentiments. The Sensex has risen 25 per cent since the election results were declared.

As trade volumes poured into the equity market on expectations of continuation of fiscal reforms that were initiated by the UPA government in the last five years, equities are back in the reckoning. “With such a mandate and the markets are optimistic. Equity definitely has emerged as an attractive option to invest,” said Sudip Bandyopadhyay, managing director, Reliance Money.

Experts maintain that retail investors should never try to time the market due to its inherent uncertainties. “Corporate profitability will rise on account of the softening commodity prices, reduced interest cost, increase in pricing power of companies in some sectors and rising consumer spending," said Abheek Barua, chief economist, HDFC Bank.

What has changed?

A bit of faith and lot of hope has returned to the equity markets in line with the optimism in the economy. FIIs are investing in the Indian market, banks have smoothened credit to corporates, and domestic investors have also turned bullish on the markets for the long run.

“Unless there is a major negative surprise in the international market, equity markets in India should have a good run in the longer term and buying opportunities would emerge with every dip,” Bandyopadhyay said.

Traditionally, equity as an asset class has been the best return generator for investors in India. Even when the Sensex corrected from an all time high of 21,206 in January 2008 to 8,160 on March 9, 2009, it still had a compounded annual growth rate (CAGR) of 23 per cent over five years as on Friday’s closing at 13,887.

What’s in for you?

The rough times for equities over the last six months ensured that investors park their fresh money into short-term liquid funds to be invested in equity later.

“We advised investors to keep their money into liquid fund (for very small period) or short term debt funds (upto 6 months) and as things have changed, that money can go to the equity markets but only through the systematic investment plan or into trigger options of fund houses,” said Surya Bhatia, a certified financial planner. “Investors should avoid direct equity exposure unless it is a small amount into blue chip companies.”

Gold no substitute

The equity markets crashed in, 2008 and that is when gold shone in terms of returns. Equity markets fell by 62 per cent between its all-time high on January 10, 2008 to March 9, 2009 when it closed at 8,160; in that period, gold rose by 29 per cent. Most of the price rise in India is on account of the appreciating dollar and not because of rise in international prices.

While gold is no substitute to equity, it is a separate asset class that preserves its value and acts as hedge.

“Gold should form 5-10 per cent of your total portfolio at any time,” said Bhatia.

A clear edge over realty

Real estate, like equity markets, generated big returns for the investors between 2004 and 2008. But the prices rose too high too fast. The subsequent rise in interest rate interest rates and the economic slowdown caused demand to vanish.

“Real buyers will come out now as the sentiments are improving; investors should look for good bargains as prices won’t rise in the near future,” said Anuj Puri, chairman, Jones Lang Lasalle Meghraj.