The last 12 months for Indian market were nothing short of a roller coaster ride for investors. The Nifty50 which gave 18 per cent return in the financial year 2017 hit a low of 7,900 in December but then bounced back sharply to hit its fresh record high of 9,218.40 in March.
It was a difficult year for traders but for investors, it gave multiple entry points which they could have used to accumulate quality stocks for long-term. For the most part of the year, the market moved in a range ahead of crucial global as well as domestic events.
Indian market managed to withstand global volatility emanating from events such as Brexit, a rate hike by US Federal Reserve and surprise win of Donald Trump in US Presidential elections back in the month of November 2016.
Back home demonetisation, muted quarterly earnings growth from India Inc., Rexit, geopolitical tensions which emerged after India’s surgical strike on PoK, political uncertainty ahead of state elections etc. all weighed on sentiments.
Although investors made money in India market if they would have held on to their long positions but there are lessons to be learned:
Market always give you entry points, don’t ignore:
This is one of the difficult questions in front of investors and advisors as to when to enter. Well, there is no specific month for that or even a season, investors have to remain patient and sit on cash and just wait.
When things look grim for markets and there is fear instead of euphoria there is your entry point. Why are entry points important? Well, simple explanation to that is – if you buy at a low price there is a higher chance of you making money in that trade.
One such entry point came back in the month of December when Nifty50 made a low of 7,894 or nearly 7,900 but then went in just one direction i.e. higher.
“What started as a pullback in December 2016 from the low of 7,894, has strengthened with a prudent general budget, impressive corporate earnings and followed with an enormous victory by BJP in state elections,” Amar Ambani, HoR at IIFL Private Wealth said. In just first three months of 2017, Nifty has recorded returns of 12 per cent.
Don’t look back, looking ahead is important:
You may not be able to recover what you lost in FY17 in markets. But, it is important to realise the possibility which FY18 presents you. Don’t remain stuck with stocks which you have already invested in, build your portfolio by adding quality stocks.
Do you know more than 100 stocks in the S&P BSE Smallcap index more than doubled your wealth in the last 12 months which includes names like Tata Metaliks, Aptech, Escorts, GNFC, Lumax Industries, ITI, Manappuram Finance, Edelweiss Financial, Gulf Oil, Delta Corp etc. among others.
In the midcap space, six stocks rose more than 100 per cent in the last 12 months which include names like Indian Bank, Bajaj Finserv, Biocon, Sun TV, JSPL, and HPCL.
The idea is not to look at the short-term market movement but be more forward looking when we are making decisions related to investments.
“Market discounted all the negative news and rose higher. The effect of falling interest rates, US Elections, Brexit, Demonetization were discounted under the long-term positives of India growth story and delivered upside returns of 18 per cent in the financial year gone by,” Dinesh Rohira, Founder CEO of 5nance told Moneycontrol.com.
“Though it is tough to think beyond a short-term, the past year has shown that regardless of some pulling down factors, markets can and will go higher,” he said.
Focus on quality and not on quantity:
We always come face to face with situations when we feel stuck. This happens when investors get stuck with stocks which are not that liquid.
Why is liquidity important? Liquidity is your way out from any stock. It means that whenever you want to cash out there are enough buyer which want to buy that stock. One big lesson for investors at any stage is to focus on stocks which have enough liquidity.
Equities remain one of the attractive destinations with better growth outlook than its major competing asset classes such as fixed income, real estate, gold etc.
“We recommend investing in quality names that have reasonable growth visibility coupled with strong balance sheets. We advise a staggered buying approach to build a long-term portfolio,” Pankaj Pandey, Head of Research, ICICI Securities told Moneycontrol.com.
You forgot to diversify:
I am sure you know this by now that diversification is very important not just in equities but across sectors and asset classes. If we closely look at the way the past 12 months have gone by, we note that it was cyclic in terms of rallies in sectors like automobiles, telecom, pharma and banking at different time frames.
“The idea is to diversify across sectors. If you did not have an exposure to some sectors, the year could have turned out to be bad. The year was a complete turn-off for gold and real estate, the assets that has the maximum wealth of the nation,” said Rohira of 5nance.
“With the interest rates for fixed income instruments floored to sub 7 per cent investors should look forward to diversify in other avenues like debt funds that ensure stability of returns and an element of safety. A diversified and balanced portfolio is a key to building wealth on a long term,” he said.
Govt policies take time to give returns, be patient:
After gaining majority win in the state elections, the ruling government is in a much better position to implement reforms and bring out policies which can fuel the growth rate in Asia’s third-largest economy.
FY18 will see the fruits of important reforms undertaken by the government in FY17 such as demonetisation and goods and services tax (GST) which are likely to benefit small and midcap stocks more than largecaps.
Investors should learn that scope of the policies which are being implemented by the government and make their own assessment as to which sector or stock (s) will benefit directly from the implementation of such policies in future.
Instead of waiting for policies to get implemented there is no harm being prompt in your approach and buy stocks which will be available at attractive valuations.
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