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Retail investors should play safe

india Updated: May 04, 2009 23:32 IST
Sandeep Singh
Sandeep Singh
Hindustan Times
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“Half my losses in mutual funds (MF) have recovered over the past one month and if it continues to move this way for one more month, all my investments will turn profitable,” my colleague said on Monday, commenting on the 6.4 per cent rise in the Sensex.

Two months ago his question was different: “When is the market going to recover and shall I stop my MF investments?” When I advised him to keep patience on, he said, “It my hard earned money and I am really worried.”

It is only natural to get excited over a 49 per cent growth in Sensex in less than two months. But the larger question remains: in a market that has become hyper-volatile, what should a retail investor do?

Among many other things, the keyword is: Caution. “The biggest uncertainty right now is in the form of election results and retail investors should wait before investing in a market that has already gone up by 50 per cent,” said CJ George, CEO, Geojit Securities. “Although there have been inflows, we are not getting any concrete symptoms of global financial markets settling down.”

Last week, when I met Chanda Kochhar as she took charge as managing director and CEO of ICICI Bank, she said, “I don’t think the global challenges are behind us. The real economy is still facing them.”

All told, there are four uncertainties in the market today --- global financial markets have yet to settle down; the elections results and the accompanying stability is far; a slowing GDP growth is in the air; and day-to-day volatility is extremely high. All these uncertainties suit day-traders.

As far as retail investors — who don’t have minute-to-minute access to stock sensitive information — go, they have to do only one thing: go on investing regular sums in an exchange traded fund, every month. What they are looking for is an “equity exposure”, as different from “stock tips”.

When the market falls, they will get more units; when it rises, less. That’s the one sure-shot formula to create long term wealth.