Investment strategies for the present times

By Rajiv Deep Bajaj, Vice Chairman & Managing Director, Bajaj Capital Ltd


The current times will be imprinted in our memories for a long time to come. Equity markets have gone back to the levels that existed a couple of years back.

It is only natural for us investors to feel disappointed. More so, for those, who have invested in the markets at the peak and for those as well, who were not informed enough to rebalance their portfolios periodically.

Fluctuations are the only constant in stock markets and volatility inherent. Although we are aware of this fact, we get apprehensive whenever we encounter such hiccups.

Countless questions arise in our mind. Is this the right time to enter the market? Will the downfall completely wipe away our investments? Should we exit now and save ourselves from more damage or invest more to average out the cost of investment?

Things can get pretty confusing when the going gets tough.

But, all is not lost. Even at such levels, opportunities do exist. We can make the most of even this situation. While share markets do carry an inherent risk element, smart and meaningful investment strategies are the key to optimizing returns with minimal risk.

•Have a long-term horizon: It pays to have a longer horizon especially in the current times. One would be less perturbed if one knew that their investment horizon is long and that the situation would eventually turn-around.

However, there are other points too. Firstly, what you buy should be well researched and in tune with your investment horizon.

Secondly, once you know that your pick is well sought, give it due time to appreciate.

Finally, if due to some dynamic factors, the performance deteriorates and you find that there is lesser probability of a turn around, exit the investment immediately. Emotions do not help in stock markets.

•A good entry is as important as a good exit: One should know when to invest. This doesn’t mean trying to time the markets. Rather one should avoid becoming a victim of unnecessary euphoria.

Legendary investor Warren Buffet once said – I get fearful when others are greedy, but I get greedy when others are fearful.

It has been seen that the best investments are those which have been made during times of extreme pessimism and panic.

The situation today presents one such rare opportunity when valuations are down to historical levels.

The Price Earnings ratio of S&P CNX Nifty is hovering between 11 & 12, having touched a 10 year low of 10.66 recently, presenting an excellent entry point.

We are in a situation when perceived risk is very high due to extreme pessimism, but actual risk is low as downside is limited. It is in such situations that the rarest of rare opportunities materialize.

The need, therefore, is not to sit tight but to act and capitalize on them.

•Go steady; follow the staggered approach to investing: Markets are presently going through a period of high volatility, characterized by sharp movements in both directions.

Hence, investments in a staggered manner are preferred rather than going for one time lump-sum investments.

A Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP) kind of approach can work wonders in this scenario.

•Size Matters, at least in Equities: This is the time to repose faith in the Goliaths of the industry. Companies like Reliance, Bharti, ITC, ONGC, Larsen & Toubro, etc. are the best bets to survive difficult times.

After all, they are rich in experience, are the best in their business, have deep pockets and have already been through difficult times in the past.

They know how to survive, what to do when things are going bad.

Rather than panicking and shifting your investments from equity to cash, or looking for capital guarantee products, one should actually look to invest more in equities at present, but in a systematic manner.

After all, you need a parachute when you jump from an airplane at a height of 21000 ft, not when you jump from the last step of a staircase.

Moreover, booking losses now and shifting to cash will only give negative real returns and ensure that the chance to recoup your losses is lost.

After all, it will take equities only one day to gain by 5%, but it will take cash more than 6 months to go up by that much!

(You can e-mail Rajiv Deep Bajaj at: rbajaj@bajajcapital.com. The views and opinions expressed are the writer’s own and not those of Reuters. The article above is not intended to be a financial advisory. Readers must seek specific advice from experts before making investment decisions.)

Source: Reuters