We all know as the financial world is going through a credit crunch, the real economy will sooner or later feel the heat of this impact. Companies and institutions are cutting costs to survive these challenging times. It’s imperative to understand that it is not just companies that will be affected; individuals too can be affected with this slowdown.
Many of us have invested our hard earned money in share market. Some of us have invested when the market was in its all time high of 22000 levels. Today the market has crashed to 8000 levels. Some of us have booked the loss and exited from the market but those who have not exited are in such a situation that they can not exit at this time. So there is no other choice than to consider those investments as a fixed deposit for long term tenure at least 5 years horizon period.
What do we learn from all this things? There is a well known saying especially for share market investment and it is “Never place all the eggs in one basket.†So, one should not put all his money into one stock or only in equities at this time. Better stay away from market for some time (look into investing after Elections are over) let the market get its stability and follow a staggered buying process like SIP in Mutual Funds.
Invest in large-cap companies because money will first flow into quality large-cap companies. Many people do not know about large cap, mid cap and small cap companies. In this case better to invest in Diversified Mutual Funds via SIP route.
Do not be greedy. Cut short your expectations in terms of returns required and increase the horizon of investing (18-24 Months), though you may get strong rallies on the upside as the markets are heavily oversold at this time. There is no use of booking short term profit as it will lead to tax implications.
Research shows that companies where the debt-equity ratio is low and has good cash flows, can be utilized for growth. For example, companies in the FMCG sector which have almost nil debt and the business is supported by robust cash flows and are regular dividend players. The few of the good dividend paying companies are Colgate, ITC, Hindustan Unilever and Godrej Consumer Products Limited etc. Look at dividend yielding stocks, especially in the PSU and banking stocks whose dividend paying history is robust.
Before taking any decision in investment you must take into consideration the Portfolio allocation. In the short term run, because the market is highly oversold, if a technical rally comes then almost all stocks which have been crashed heavily will offer quick returns. But how long the technical bounce sustains is unpredictable. So if your portfolio has those stocks and you get your expected returns or at least the capital take a decision to stay invested or exit. In the medium term, inflation level will go down owing to the huge corrections that have happened in commodities and food prices. So that is also a point to consideration. Best of Luck and Happy Investing
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