By Dinesh Pangtey
Today we are at a time when the bullish outlook for equities and multiple waves of cash rush have driven the stock markets to a high valuation projecting us a very bullish economic recovery, as actual macroeconomic indicators point to a very strong picture. different. Indeed, Indian macros have a long way to go to catch up with the high valuations of the equity market. As a result, any setback in the economy, such as a second wave, lengthened the recovery process, thus exposing the equity market to correction risk. On the other hand, positive developments in investment spending, inflation, the public deficit, divestment plans, etc. could raise the valuation of the equity market to a higher level. So investing in such times could be tricky.
Before I get into this dilemma, let me first discuss the basics of investing. Investing without a goal or objective is the most common mistake investors tend to make. The first thing an investor needs to do is define their investment objective. This brings clarity to the investor’s vision, which allows him to take a calculated risk. Thus, defining the purpose of the investment is the first step towards a successful investment.
Now coming back to our question, well, I would like to see this as part of India’s long term growth story. To me, these events are nothing more than investment opportunities. If you are convinced of India’s relatively faster recovery relative to our peers and are determined to make a long-term commitment to Indian equities, these events should not bother you. In fact, investors must capitalize on such opportunities.
In my view, the high valuations largely reflect the long-term actions taken by our government, the results of which we may see in the near future. Measures such as several rounds of financial support to curb the downturn triggered by the pandemic, promising divestment plans, a highly anticipated list of India’s LICs, regulatory initiatives such as the recapitalization and privatization of PSU banks, Relaxation of regulatory standards for banks and the real estate sector, the introduction of the Performance Tied Incentive Program (PLI) in several sectors is expected to give a boost to growth in the future. The government seems to be stepping in the right direction. In fact, we are already seeing green shoots in the form of highest GST revenues, strong recovery in auto sales, improving trade balance, SIP flows reaching an all-time high of 9,200 crores of Rs in March 2021 (source: AMFI https: / /www.amfiindia.com/). This, together with the expected near-normal precipitation, will lay a solid foundation for a faster economic recovery in the years to come. These facts corroborate that long-term growth is intact. Therefore, I urge investors to invest in Indian stocks. Ideally for retail investors, investing through SIP is the best way to participate in the equity market. One of its advantages is that it helps to mitigate the volatility of the stock market.
I believe that the investment only gives the best return if it is made over a long period, that is to say 8 to 10 years. Therefore, investors must have vision and discipline to become a successful investor. Longer term investment coupled with vision and discipline helps build corpus through increasing value and making the most of the power of composition. Another advantage of long-term investing is that it offers re-entry opportunities in a volatile market. Investors should continue to do SIP while looking for sharp market corrections as an opportunity to invest a lump sum in equity funds. As I would like to say, you may never be able to time the market, but with long term investment you may be able to time the opportunities. The recent fall in the stock market is a prime example. The long-term investor would have accumulated more by investing more in the crash.
The best way to make the most of the potential of the Indian stock market is to invest through SIP in diversified funds. The equity market continues to be dynamic. However, one cannot predict which sector could outperform the others. Thus, it is preferable to diversify your portfolio through funds such as large caps, mid caps, small caps, thematic funds, etc. SIP in the above mutual fund types will ensure investors don’t miss out on any significant rallies in any particular type of industry / company / topic. Diversification not only helps you broaden your investment base, but also reduces the risk of concentration in a particular industry / company / theme.
Investment requires analysis
Investing in stocks requires a data-driven and fact-driven approach. Fundamental investing requires a higher level of investor involvement and is therefore no different from any full-time job. It is almost impossible for retail investors to do basic research alongside their current profession. This is where the role of mutual funds becomes important. Mutual funds have a dedicated workforce in the form of fund managers who actively manage investor money and seasoned analysts with hands-on experience in different industries who are continually looking for investment opportunities. . Rigorous fundamental analysis, backed by an investment philosophy, followed by a multi-level assessment process, helps mutual funds effectively identify opportunities and threats in the market and take necessary action. Mutual funds have been in service for decades, making retail India financially independent. Therefore, I urge investors to trust the abilities and invest in stocks through mutual funds.
The investor may also seek a professional advisory service with expertise in providing investment services to retail investors. Be open with them about your goals, share with them your vision, your performance expectations and your risk appetite. Advisors can share their knowledge and perspectives on the markets. After talking in depth with the advisors, the advisers will help you determine the asset allocation based on your vision, your return expectations and your risk appetite. So, with the help of a financial expert, you would be able to build a well-planned portfolio.
To sum up, I would ask investors with a long-term horizon to strengthen their discipline by investing in SIPs across funds and build a corpus by maximizing the power of capitalization. During this time, the investor should also look for a crash or market corrections as an opportunity to re-enter the market. Avoid direct investments in the stock markets unless you are experienced. Believe in the expertise and caliber of mutual funds. Whenever possible, use financial experts to plan your investments.
Investing with purpose, committing to a long-term investment and choosing the right investment channel are the steps on the road to financial independence.
(Dinesh Pangtey is the CEO of LIC Mutual Fund Asset Management. The views, thoughts and opinions expressed in the article are the sole property of the author. Please consult your investment advisor before investing.)