Tiding over volatility; maximising returns

The economic slowdown has become a raging topic of discussion now. The declining growth rate and sub-par performance witnessed across sectors are making retail investors anxious. While one cannot predict the duration of this slack, an analysis of the situation shows that there is some hope.

All is not that bleak

The Indian economy is facing the consequences of various domestic and global development. Indecisive US-China trade talks, inversion of the US treasury yield curve, manufacturing cuts are a few global factors contributing to market volatility in India. India is also reeling under domestic factors like the liquidity crisis, consumption crunch and downward spiralling private investments.

The economic indicators have, however, started showing signs of bottoming out. The government has taken a slew of measures to revive various sectors like addressing the NBFC liquidity situation, the stimulus package for automobile sector to boost demand, steps to relaxing FDI in certain sectors to ameliorate the demand-consumption equation, giving hope for the growth momentum to pick up soon. As we wait for it, retail investors can take a few steps to make the most of the situation.

Avoid distress sale

Investors need to consider the impact of these events on the fundamentals of stocks in their portfolio. Avoid unnecessary churning of the portfolio if the resulting market volatility does not impact the prospects of the stock. Fundamentally strong stocks can weather market lows if invested in for a longer duration.

Don’t go whole hog

While the markets are under tremendous pressure, some consolidation is expected with a negative bias in the short run. In the long run, however, markets are poised to move northwards. The future outlook gives retail investors a chance to invest in quality stocks in a staggered manner based on sound research. Considering the majority of the market is trading at valuations not seen in the past two-three years, investors need to weigh their options of averaging in stocks already invested in.

Stay true to your SIPs

Market volatility is favourable if investors opt for the SIP route to invest in mutual funds. One can minimize the average cost of investment and leverage market movements to add more units at a low cost. Continuing SIPs is a safe bet in the current scenario as professional fund managers exercise due diligence to safeguard investors’ interest.

Believe in growth potential

The rate of return on equities is linked closely to the economy of the country. India grew from $0.3 trillion in 1991 to $2.8 trillion in March 2018. In 2002, India was a $0.5 trillion economy; it crossed the $1 trillion mark in 2007 and $2 trillion in 2014, despite global headwinds. India aspires to enter the $5 trillion club but lacks in infrastructure, per capita income, spending power, etc. which offers ample opportunities for growing businesses. Smart investments now can help investors to leverage this growth potential.

Focus on goals

Investors are tempted to sell their shares to cut losses when markets are not doing well. Financial planning, however, is a goal-based exercise. Investors should be unfazed by market downturns and keep an eye on their goals.

Many are unsure if a recovery is around the corner. However, data shows that markets tend to always recover from a downturn. In 2008, post the Lehman crisis, Sensex crashed by close 49% but jumped by close to 109% in the next one year. Markets have a way of testing your patience but rewards handsomely if you are ready to wait. Instead of getting perturbed by the current market gloom, adopt a long-term outlook. After all, this too shall pass.

(The writer is MD and CEO of Axis Securities Limited)