Bet on Long-term Play to Keep Your Portfolio in Good Shape
Experts foresee wild swings in the market due to huge expectations from the new government. They advise investors to set a longer time horizon to beat the current volatility, says Madhu T
Many financial advisors have been mentally preparing their clients to face huge swings in the stock market. They have been telling their clients, especially those obsessed with daily movement of the indices, that outcome of the elections, the formation of ministries, major policy initiatives, even minor setbacks and disappointments are likely to sway the market wildly in the coming months and they shouldn’t get unduly perturbed about it.
The massive movement on the Sensex on last Friday has underscored their point. However, it also took some of the seasoned investors, mentally prepared for regular zigzag movements of market benchmarks, by surprise.
According to some market participants, many regular investors were in a self-congratulatory mood when they learnt that the market had shot up by more than 1000 points on Friday morning. But, most of them couldn’t believe it when they read in the newspapers next day that the market benchmark index had closed barely 200 points above the previous close. On Friday, the Sensex rose by 1470 points to 25375, but erased most of the gains on profit-taking and closed 216 points higher at 24121.
“Volatility is the order of the day. You can’t escape it completely when you are in the equity market,” says Hemant Rustagi, CEO, Wiseinvest. “The only way to beat it is to spend more time in the market and set a longer time horizon for investments.”
Avoid the Blues
Rustagi is bravely using the word volatility, but most advisors avoid usingthe term due to its negative connotations. “Most investors associate volatility with the negative undertone in the market. That is why I am telling them the market may move in a wide range or fluctuate wildly for some time,” says a financial advisor who does not wish to be named. “I tell them simply that since there is so much hope riding on the new government, even a small disappointment could drag the market down and they shouldn’t worry about such shortterm trends,” he adds. Raghavendra Nath, MD, Ladderup Wealth Management, says the volatility angle is overdone by some market participants. “If you look at the market movement in the last few months, you would see that it has moved mostly in the upward direction. Naturally, there will be some correction and you can’t term it as volatility,” he says. He points out that the volatility index has come down significantly to 20 from 35 on the day the election results were announced. He also feels that the market is unlikely to fall dramatically as there would be buying interest at lower levels due to the huge expectations from the new government.
Undertone is Bullish
Most advisors want investors to develop a Zen-like detachment towards the Sensex and the Nifty. But since that is a tall order, some of them suggest ways in which investors can limit the impact of indices on their investments. “Investors should remember that the index movement influences their buying or selling decision mainly because they don’t have a time horizon for their equity investment,” says Rustagi. He cites the example of investors who dreamt of selling their stocks when the market soared by more than 1000 points last week. “You think of booking profits when the market is up 5% or selling when it is down 10% because you haven’t set any other parameter for yourself. If you have got into the market with a ten-year timehorizon or goal, you would know that there would be two elections during that period or ten budgets and they shouldn’t really influence your buying or selling decisions,” he adds.