While the last year has been bad for the equity markets – not only in India but the world over – it seems that now the time has come to increase allocation to this investment avenue more than before.
Another ‘indication’ is that we have started seeing high coupon rate debt instruments being floated in the market – the latest being of Tata Capital with a coupon of 12%pa. This may be early signals of the bond / fixed income market peaking out. And such an event will be positive for the equities markets as eqity markets and bond markets usually have an inverse relation.
Historically speaking, in the past 28 years we have seen three bull markets and three bear markets.
Also, if we take on a peak to peak basis, market peaks for this period have been made more or less after 8 years – in 1992, 2000 and then recently in 2008.
After each of the peaks in the previous two cases (1992 and 2000) the bearish phase was for a period of approximately 15 months. If we go by this, we are already into the 13th month (its a fibonacci!) from the peak of Jan 08. Thus anytime during the next two months – March and April, we may see the markets bottoming out. This is then, the period of low risk and high potential returns for the investor who has a time frame of 6-8 months. It would be similar to buying stocks during March 2003 at Sensex levels of 3000.
Moreover, on fundamental grounds, in the next few months, a stable government, positive indication on monsoon and a reforms-and-revival inclined budget should act at additional triggers for the market to continue up.
Thus, the next time you see a headline that the markets have crashed, become happy and think of it as your opportunity to invest rather than having a panic feeling.
Most stocks in most sectors are available at reasonably cheap valuations. The Sensex is currently near the bottom range of the P/E value at near 11 times and many individual stocks have seen 60 – 70% corrections from their peaks- offering investors a good entry point.
Thus,
The best strategy for the investor is to buy the frontline stocks – Nifty fifty / Sensex 30 – in a phased manner at every fall of say 400 points.
For example, the investor will buy 20% of available fund in frontline stock say at 9000, another 20% at 8600, another at 8200 and so on. The time frame of investment will have to be 6-8 months for the investor to get decent returns.
