Hope, fear and greed are three basic elements that constitute our capital market. In the past 24 months, the market has been in strong grips of one or the other of the three elements.
Year 2010 is starting on a note of hope; hope that the Indian market is going to have another year of strong outperformance.
Compare this with the start of 2009, when fear was the overriding factor in the minds of investors as financial markets were coming to terms with one of the worst crisis after the Great Depression of 1929.
Go back a little further, at the beginning of 2008, greed was all over the Street. Everyone was taking to the street, the number of new demat accounts opened between late December 2007 and early January 2008 were more than the total opened in the preceding 12 months.
Now, look at the sentiments at the end of the each year. In December 2008, everyone was counting his or her losses. At the end of 2009, everyone is wondering why didn’t they buy stock when the market had hit rock bottom in March. So, what will be feeling on the Street at the end of 2010? Will it be euphoria or will hopes be dashed to ground once again after the indices peak in mid-2010? Or it could be the exact opposite?
Whatever the mood might be at the end of 2010, some rules, if followed in letter and spirit, will help investor make money in the coming months. First, don’t invest in an index fund at present level. What could be the best-case scenario for the index performance in 2010? A rise of 20 per cent from the present level will make Nifty cross its all-time high and even the biggest bull on the Street is not expecting that to happen.
So, if you are one who invests through mutual funds, stick to mid-cap funds. There is a high probability that some of the mid-cap companies are going perform well on the bourses, making mid-cap schemes a better bet. Among the plethora of mid-cap funds, investors should choose those where commodities companies don’t figure prominently in the portfolio. The scheme should be well diversified in terms of sectoral exposure, and there should not be any doubt over corporate governance of the companies that figure in their portfolios.
Also, avoid mutual fund schemes where cash levels were very high in March, 2009. This will be an indication that the fund manger of that scheme was as confused and fearful as the retail investor when the indices were quoting close to their lowest valuation bands in which they move.
Secondly, keep a watch on the US dollar. Any strength on the greenback can play spoilsport in the Dalal Street party. The easy money that some of the hedge funds have invested in emerging markets is going to flow out at the slightest rise in the dollar.
In order to hedge against any possible decline in the rupee, have some stocks of IT, textile exporters and oil PSUs in your portfolio. The rise in the US dollar will lead to a decline in oil prices, which should help the Oil PSUs reduce their cash losses and also their dependence on government bonds.
There will be a phase of underperformance for Indian equities even if the news flow on the companies front is good. But that phase of underperformance will be only for a short duration. Investors should utilise this phase.
Source: http://www.mydigitalfc.com/stock-market/10-minute-guide-alert-investors-664
Year 2010 is starting on a note of hope; hope that the Indian market is going to have another year of strong outperformance.
Compare this with the start of 2009, when fear was the overriding factor in the minds of investors as financial markets were coming to terms with one of the worst crisis after the Great Depression of 1929.
Go back a little further, at the beginning of 2008, greed was all over the Street. Everyone was taking to the street, the number of new demat accounts opened between late December 2007 and early January 2008 were more than the total opened in the preceding 12 months.
Now, look at the sentiments at the end of the each year. In December 2008, everyone was counting his or her losses. At the end of 2009, everyone is wondering why didn’t they buy stock when the market had hit rock bottom in March. So, what will be feeling on the Street at the end of 2010? Will it be euphoria or will hopes be dashed to ground once again after the indices peak in mid-2010? Or it could be the exact opposite?
Whatever the mood might be at the end of 2010, some rules, if followed in letter and spirit, will help investor make money in the coming months. First, don’t invest in an index fund at present level. What could be the best-case scenario for the index performance in 2010? A rise of 20 per cent from the present level will make Nifty cross its all-time high and even the biggest bull on the Street is not expecting that to happen.
So, if you are one who invests through mutual funds, stick to mid-cap funds. There is a high probability that some of the mid-cap companies are going perform well on the bourses, making mid-cap schemes a better bet. Among the plethora of mid-cap funds, investors should choose those where commodities companies don’t figure prominently in the portfolio. The scheme should be well diversified in terms of sectoral exposure, and there should not be any doubt over corporate governance of the companies that figure in their portfolios.
Also, avoid mutual fund schemes where cash levels were very high in March, 2009. This will be an indication that the fund manger of that scheme was as confused and fearful as the retail investor when the indices were quoting close to their lowest valuation bands in which they move.
Secondly, keep a watch on the US dollar. Any strength on the greenback can play spoilsport in the Dalal Street party. The easy money that some of the hedge funds have invested in emerging markets is going to flow out at the slightest rise in the dollar.
In order to hedge against any possible decline in the rupee, have some stocks of IT, textile exporters and oil PSUs in your portfolio. The rise in the US dollar will lead to a decline in oil prices, which should help the Oil PSUs reduce their cash losses and also their dependence on government bonds.
There will be a phase of underperformance for Indian equities even if the news flow on the companies front is good. But that phase of underperformance will be only for a short duration. Investors should utilise this phase.
Source: http://www.mydigitalfc.com/stock-market/10-minute-guide-alert-investors-664
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