After
rising around 4000 points from the bottom of 5100 to top of 9100, Nifty is in
correction mode. Corrections are healthy for the market but nobody has expected
such sharp fall when everything is fine at the centre. Suddenly yesterdays fall
confused the investor’s about the future action. It is very common that in
rising market everybody wants to invest more but in falling market investors
take wrong decisions which do not allow investors to make profit in equity
market. This sudden rise and fall in the market make most of the investors
uncomfortable and therefore majority of the people treat equity investment as
speculation and stay away from it. But this is not a good sign. You can’t
ignore equity investment if your goals are long term.
Is
this situation really bad? What should investors do in the current market
situation? Before coming to solution one must look back and check what happened
in the past. We have seen worst US subprime crisis and European debt crisis. We
have seen coalition government for many years where decision requires approval
from smaller parties. We have also seen the crude at $105 per barrel and the
rupee falling to near 70 against the dollar. What it tells us that uncertainty
comes and goes, if you know what risk you are taking then it may surprise you
in the long run with good returns.
India
has moved ahead after last general election. Inflation at present is under
control. RBI cuts repo rate by 0.25% twice in recent past. We have all time
high forex reserves. Above all we have a stable government at centre which is
committed to economic growth of the country. Economy also runs in a cycle; like
good phase in the market bad phase is also not permanent. Risk comes from not
knowing what you are doing. Taking informed decision always help to take
calculated risk.
Investors
must also try to understand equity as an asset class before investing. It has
always outperformed other assets class in the longer run. If you understand and
follow the basic rules of investing in equity then this volatility in stock
market will never affect you. Firstly your time horizon for investing in equity
should be minimum 5 years and more. You must invest as per your asset
allocation ratio and never go overboard and concentrate on single asset class.
Never try to time the market and always stay invested is the success mantra for
investing in equity. Periodic review and rebalancing of investment helps you to
stay in defined asset allocation.
So this is not the time to press the panic button and exit equity
investment. Just check your asset allocation and don’t stop SIPs as SIP in
mutual fund equity scheme is the best solution for investing in equity for the
long term. By investing through SIP you reap the advantage which is known as rupee
cost averaging. This lowers the average
cost of your holding. Secondly if you invest through SIP, you do not have to
worry about daily volatility of the market. SIP can be done with small amount of
five hundred rupees and also you get the advantage of power of compounding.
If
you know the advantage of systematic investment then any situation whether
internal or external will not affect your investment decision. Watching market
daily is not a good idea for the long term investor. The market is at present closely
watching Land acquisition bill and GST Bill. Looking at the strength of the
ruling party in the Rajya Sabha both the bills are unlikely to be passed easily.
This uncertainty and delay is one of the major reasons for the present down
fall. You should know that this Government has managed to pass crucial bills
like insurance, coal and mining bills recently. They will find solutions for
these bills also. Even they are delayed further there is no reason to come out
from equity investment. Corrections are healthy for the market but at the same
time you should closely review and monitor your investment. When market was
near 9000 mark nobody rebalanced their portfolio and at this level it is not
good to press the panic button unless you require cash in near term. Entry in
equity via SIP is very easy but you should also plan your exit in advance when
you get extra ordinary return.
This article first appeared at indianotes.com
http://www.indianotes.com/Analysis/Dont-press-the-panic-button/194504/2/T
