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

The Economic Times - - Markets & Finance -

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.

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