Is it time to Buy Equity?

The S&P BSE Sensex has plunged 4,600 points, or by about 12 percent, from its lifetime high of 38,989 recorded in August. 

Indian market have been seeing a sharp sell-off on account of depreciation in rupee and higher crude prices. This negative sentiment was further reinforced by the fear of liquidity crisis to support credit growth following the IL&FS scare. Sentiment took a major hit due to the interference of the government in oil Marketing Companies and the stand of RBI in its recent meeting. 

Out of the four legs of the market, three of them, Macros, Liquidity and Sentiment have been badly hit and are appearing wobbly and that too before the election season has even begun. It is now up to the Earnings to provide support. Any negative impact there and the market will go into a tailspin. A positive in earnings will help stabilise the market and provide relief to the investors.

The market when it corrects, doesn’t spare anyone, all go down, the Blue Chips, The cash cows, the value buys and the growth stocks. 

The lofty valuations are beginning to appear realistic. Small and mid caps had been mauled in the run up to the corrections and suddenly some great names and stories are more than 50% down from their peak. 

Surprisingly, this time around, at least till now, we are not facing much of a redemption pressure. Some conservative investors are concerned, because of their notional loss from the peak and are questioning, if the FD was the right choice and saying “my FD would have been 106 as against the late 90’s the portfolio is reflecting”. But on the contrary, most aggressive mutual fund investors are calling to ask whether they should invest more at this time or increase their SIP.

Is it growing investor maturity, the availability of varied inputs and open discussion on the longevity and depth of corrections in the media or a long-term faith in the India Growth Story? That only time will tell, but lets get back to the original point, “Is it time to buy Equity?”

My answer is very simple. Where does Equity fit in your total financial Planning and asset Allocation? What is your time horizon?

Just because there is a sale in the Mall, would you buy a shirt you don’t need, a jacket, which doesn’t fit, or a shoe, which isn’t your size. I don’t see very many people taking up the 1+1 offer available during Happy Hours during a working day, just because you can get an additional drink free. If on vacation, I may pick up the offer of a free drink. 

Why should buying Equity or making an investment decision be any different? 

If you need it, if it fits into your requirement, if it will help balance your portfolio, if you have the risk appetite, if you have the long-term horizon, please go ahead, consult your financial advisor, check the valuations and buy the best fund or the Blue Chip stock available at a discount from its peak.

But, If you looking for making some Quick Money by investing at this point of time, then My Answer is NO. There is an old adage, never try to catch a falling knife; you will just end up hurting yourself.

Do not let emotions cloud your judgment; Many investors have been losing money in stock markets due to their inability to control emotions, particularly fear and greed. In the stock market, the lure of quick wealth is difficult to resist. Greed augments when investors hear stories of fabulous returns being made in the stock market in a short period of time.

Instead of creating wealth, these investors burn their fingers very badly the moment the sentiment in the market reverses. In a bear market, on the other hand, investors panic and sell their shares at low prices despite having some great blue chips at great valuations.

Just remember the famous quote by Charlie Munger; “It is remarkable how much long-term advantage people have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

The very nature of the market is to remain Volatile and it is going to remain Volatile forever. 

Stick to the fundamentals, review your asset allocation, and rebalance your portfolio if required but please don’t get adventurous. Any loss of capital at this stage, and it will affect your investment sentiment, will dent your confidence further and you will just end up blaming the market. For the long term investor with a horizon of ten years and beyond, if you buy at 100 or buy at 90 for the goal of 300-400 after 10 years, does it really make that much of a difference.

Be disciplined and let your SIPs take care of your averaging. If you have a lump sum available and ready for investing, put it in an arbitrage fund and start a STP in your favourite funds and reap the benefit or get into Dynamic asset allocation through the Balanced Advantaged Funds to gain from the expected volatility in the run up to the Elections.

I ’am reminded of the Golden words written by Benjamin Graham  more than seventy five years ago, “With every new wave of optimism or pessimism, we are ready to abandon history and time-tested principles; but we cling tenaciously and unquestioningly to our prejudices.”

Everybody is a genius in a Bull Market, but one’s wisdom is only tested in a correction or a bear market.

This market spares no one. Every investor goes wrong at some time, Even Rakesh Jhunjhunwala, the most celebrated investor has made a notional loss of more than Rs 1000 cr in this correction. What is important is the ratio between your losses and profits over a period. Ideally make a lot of money when you are right and lose little when you are wrong and have the capacity to withstand and absorb both the losses and the gains.

If you still want to take risk in a volatile market like this, then see whether you have surplus funds, which you can afford to lose. It is not necessary that you will lose money in the present scenario. Your investments can give you huge gains too in the months to come.But no one can be hundred percent sure. That is why you will have to take risk. So invest only if you are flush with surplus funds and can lose them.

Happy Investing!

Stay Blessed Forever!

Sandeep Sahni