Mumbai-based Shivam Pandey,32,is a troubled man these days. An equity market analyst who knows the tricks of the trade,he doubled his money during the equity market bull run of 2006-2007 within a year. An avid reader of research reports,he read about the US subprime crisis and safely exited before the 2008 crash.
Pandey had two major expenses before him – one of making partial downpayment for his house which he made immediately after liquidating his portfolio and second,creating a corpus for his sister’s marriage which was expected some time in 2012. Having gained confidence after his last move,he was looking for the right opportunity to re-enter the markets so that he can again make money which can be utilised for his sister’s marriage-related expenses.
However,he missed the rally in 2009 and ended up investing on the way up in the second half of calendar year 2010. He assumed that the rally would sustain itself and was taken by surprise when the secular downfall continued in the stock markets throughout 2011. The date of his sister’s marriage has been fixed in October this year but Shivam is helpless as his portfolio is in the negative zone,down by more than 25 per cent.
He recently consulted a senior portfolio manager who advised him to get out and cut his losses as the visibility for the next six months is not very clear and waiting longer would be too big a risk as the markets may fall further.
Hes not an exception. Talk to any stalwart on Dalal Street who have seen market movements for the last 20-25 years and you get a sense that all is not well in the equity space. The times are unprecedented and there is no hope in the sight. What should an equity investor do in such a scenario? Thiss the million dollar question.
The answer: with some good thinking and planning,one can easily negotiate the bumpy market ride.
Experts have raised concerns that the economy might be showing early signs of a vicious cycle of de-growth,as a result of multiple issues like rupee devaluation,policy paralysis,poor availability of capital and high input costs resulting in poor sentiments for the markets. The governments clarification on General Anti-Avoidance Ruless (GAAR) last week and the RBI directive to exporters to convert 50 per cent of their exports into rupee only temporarily improved the sentiments during the week.
After lack of interest from the foreign institutional investors (FII) in 2011,the first two months of 2012 calendar year saw heavy FII inflows which raised the hopes of a turnaround in the market. Post that,be it Budget,state elections,cut in the cash reserve ratio (CRR) and subsequent repo rate cut in April,or clarifications on and postponement of GAAR to next year,nothing has been able to cheer the market with the Sensex falling 3.2 per cent to 16,292.98 last week.
This clearly points to the structural issues in the economy which might not be sorted out by short-term foreign flows. Markets sustainably improve on the back of improving fundamentals rather than liquidity, says P Phani Sekhar,Fund Manager-PMS,Angel Broking.
In the last two years,the benchmark Sensex has given negative returns of 5.3 per cent while in the last one year the negative returns were to the tune of 11.3 per cent. Unless you are a very long-term investor into equity markets,looking at more than 10 years of time horizon,chances are that your patience with the asset class must be running out already. The inherent pessimism,both among the domestic as well as foreign investors,due to the policy paralysis in all key ministries along with the poor macro-economic indicators are pulling the markets down. Its time to sit and take stock of the situation and plan the way ahead. With the kind of global uncertainty being witnessed in the last couple of years,taking a firm call is becoming increasingly difficult.
RAY OF HOPE
Investors should not expect much at least till the next two quarters (over six months). There is too much uncertainty and the number of variables that determine stock market direction have multiplied now. One should just sit tight and be in defensive sectors till some clarity emerges, says Vaibhav Sanghvi of Ambit Capital.
The biggest reason for the mayhem seems to lie squarely on the slowdown in the reforms process.
Industry chambers like Confederation of Indian Industry (CII) have been long asking the government to initiate policy reforms immediately as pressures in several industries like textiles,power,infrastructure,and telecom are mounting day by day.
Besides easing the monetary policy through cut in CRR,it is important that some of the key reforms,which are politically easy to get through,are announced at the soonest, says Chandrajit Banerjee,Director General,CII. We believe that markets will start moving up sustainably only once there are indications of reform initiatives being taken up by the government, said Dipen Shah of Kotak Securities.
While it sounds quite gloomy,a comparison between gold and equity returns shows that while the yellow metal has given a return of 4.6 per cent in 2012 till date,equity has returned 5.4 per cent. According to Morgan Stanleys India Stretegy report,buying equities is proving to be painful but we believe that,unless the world spins into another crisis,it is difficult to imagine that Indian equities will go substantially lower.
The old timers in the market believe that it is mostly gloomy times like these,with the pessimism running high,that one gets an opportunity to pick good stocks at attractive valuations and make money on the way up. It is actually a good time to divest out of other asset classes and switch to equity from a three-year perspective just like it made sense to sell equity in 2008 and move to debt, suggests Sekhar.
Market experts believe that predicting markets in these times is fraught with risk while the opinion is divided on when the reversal could happen,most analysts seem to agree that as soon as there is some action from the government on the policy front,it could be a positive trigger for the equity markets.
Till then those who want to exit may wait for some more time and those waiting to time the market may start picking up good quality stocks staying away from the speculative ones.