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Keep Your Sixth Sense Active

Author: Balaji Rao/Saturday, December 9, 2017/Categories: Cover Feature, Invest

Keep Your Sixth Sense Active

Life rolls, time flies, images become memories and when we look back we may have missed many opportunities, which could have made us rich by just using a bit of common sense and having vision of future possibilities.

At any given point in time in the history of stock markets, the uncertainty for a common investor continues – whether to invest now or later; if the markets are at peak; is the stock expensive; is the profi t made enough; should I average when it falls; I sold the stock and the price went up; I purchased a stock and the price fell and so on. But nobody knows for sure what’s in store. Basic is to keep investing in small quantities in select stocks and small amounts in mutual funds. Equity markets are designed for wealth creation and one should milk the market at every opportunity.

The BSE benchmark index Sensex was at 26,595 on the first day of the New Year which as of November was hovering in the range of 33000; an absolute return of about 24%. The Mid Cap and Small Cap indices too surged ahead of the main index during this period. At the same time, the fixed deposit rates dropped from 7.00% to 6.50% and gold per gram that was trading in the range of Rs.2,500 during January 2017,was trading in the range of Rs.2,650 in Nov 2017 whose returns in percentage is almost negligible. A comparison of performances is shown in Table-1.

Public Issues

This year public issues saw a great investing interest across every type of investors who lapped up the shares offered with both hands. Despite higher valuations out of 29 issues that were listed as on November 10 2017, 15 issues were trading at a premium to the issue price and the top 10 wealth creators are listed in Table – 2. Investing in IPOs is a good habit of keeping in sync with the markets. Of course, there is no guarantee of confirmed allotments, but given the market sentiments applying in good issues can be rewarding even if two out of five times one gets some shares allotted. Due to the introduction of ASBA the investing has become more convenient.

Secondary Markets

In line with the overall market performance hoards of stocks did extremely well since beginning of this year offering bountiful returns in absolute terms. The opportunities were mostly “bottom-up approach” where stock specific picks worked well compared to “top down approach”. Stocks from financial services space, consumption driven, automobile/auto ancillary, metal, infrastructure among others offered astounding returns. A list of top 10 performers between January and November 2017 is given in Table – 3, though the list is more exhaustive.

No doubt it is difficult to identify good stocks that have the capacity to yield such returns; it is like looking for a needle from a haystack. But a bit of research, reading magazines and newspapers that are worth makes a lot of sense and also one should possess the “sixth sense” to gauge the possibilities.

Equity Mutual Funds

Though equity mutual funds may not possess the same return off erring capacity as individual stocks, but the beauty of investing in mutual funds is that it puts investors in the path of practical returns expectation and a small amount of investment can off er the opportunity of buying into multiple stocks. On the returns front, if one starts with the expectations of achieving consistent ROI in the range of 15% year-on-year, mutual funds have not disappointed. At the same time it would be wrong to investin mutual funds with the same approach of investing in stocks. Both require diff erent mind-set, approach and investing strategies. It’s just like how cricketers tune their mindsets, approach and playing strategies while playing test cricket, one-dayers and T-20 matches. The player maybe same, but he alters his approach to suit the challenges. A list of top performers in equity mutual funds is displayed in Table-4 that have actually offered some stunning returns

Debt Mutual Funds

 While the bank interest rates started its southward journey from plus 7% towards 6%, most short-term debt funds offered smart return on investment this year. Central Bank’s stance was as wavering as stock prices that kept the debt fund managers guessing on the inflation and interest rates situation in the economy. A list of short-term debt funds ranging from liquid funds to short- term funds is displayed in Table-5 that offers a glimpse of alternate opportunities compared to traditional options such as bank fixed deposit in this space.

Rumours And News

One of the negative sentiments that prevailed just before the budget announcements early this year was that the government may introduce long-term capital gains tax on income from equity which kept the market on tenterhooks. A couple of days before the actual budget, the market remained cautious and tepid.

The budget was received well and the following month election results in UP and other important states continued to buoy the market sentiments; Sensex zoomed past 30000 in April. Despite the tension prevailed in Syria and other geopolitical issues the market sentiments was intact. The much awaited GST was implemented on the deadline date of July 1amidst confusion and chaos but with hope of reforms Sensex scaled further to 32000 levels.

 Specific stocks such as ITC and Infosys had to face rough weather despite overall positive market sentiments. These two stocks saw one of the biggest falls in the recent times. There was a crackdown on shell companies too that were alleged to be funding various participants on margins which also spooked the market scaring of a liquidity crisis which is essential for the market to be alive and active.

Further, across the border tensions prevailed in the vicinity while faraway the hostility between the world and North Korea escalated that kept the markets jittery. Suddenly the economy faced the threat of a slowdown that brought the market down by almost 1000 points during September before the government smartly announced a slew of stimulus measures post Diwali that helped the market to cross 33000 for the first time.

Despite the cry of market surging ahead of its fundamentals and most stocks trading at expensive levels liquidity is taking the markets to new peaks which are evident from the money that is getting pumped into public issues and the volume of trades in secondary market. Will the markets crash? Maybe yes, or maybe not; but being volatile is the nature of every market and so is stock market. Market has fallen in the past, it will fall in the future; market has recovered smartly after every fall, it will recover after a fall in the future too.

If you are a smart investor you just don’t have to care about how the market is performing, focus on your objectives and from time to time take the losses or your portfolio devaluation with a pinch of salt, it actually tastes better. Keep asset allocation based investing strategy by not overexposing into any single asset class and remember that maturity is the key for long term success.

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Kavita Giridhar Mallya

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