The Sensex and Nifty are down more than 10 per cent from its peak. The capital market may test another five to six per cent further down in the near future due to tariff war between the USA and China, other global factors as well as underlying economic factors. India is struggling with so many other issues such as frauds at PSU banks, the impact of GST and demonetisation, current account deficit and fiscal deficit.
A sharp rise of global oil price is also a cause of concerned for India. Also, the imposition of a 10 percent long-term capital gain and political uncertainty has deteriorated on investor sentiment. The market may take a couple of months to recover back to all time high.
The concept of ‘buy low, sell high’ should not be forgetten, while the market has massive correction and volatility spikes. Don’t panic and sell your stocks on correction rather than act positively and plan where to be invested. Each and every correction is an opportunity for investment. It is better to take a cautious and conservative approach and invest your hard-earned money in good quality fundamental stocks and index funds.
It is not prudent to accumulate the shares of PSU banks, realty sector and pharmaceuticals for the time being. The valuation of Information and Technology (IT) is attractive despite challenges and insurance sector has huge potential in comparison to other which generate more alpha in your portfolio.
It is the best time to pick up index funds. One can invest a fixed amount in an index fund regularly through a SIP; the frequency can be daily, fortnightly, monthly, and quarterly. For example, at a per-month investment of Rs 5,000, one can receive Rs 25.22 lakh after 180 months, assuming a 12 per cent rate of return per annum.
The Nifty 50 generated 5.30 per cent and 12.20 per cent returns per annum in the past 3-year and 5-year periods respectively as of March 23, 2018. As the tenure of investment increases, the probability of negative performance decreases. Historically, there has never been an instance of negative performance for a period of 10 years and above. Affirming this fact, as of March 23, 2018, Nifty 50 and S&P BSE Sensex funds generated a CAGR return of 13.03 per cent and 12.95 per cent respectively. To sum up, equities deliver strong returns with lower downside risk in the long term.
The writer is additional GM and finance in IRCON and an eminent author. Website: www.rabindramohapatra.com
