CHOPPY MARKETS – SWIM AGAINST THE TIDE OR DROP ANCHOR?

By Ruma Dubey

 The biggest question dogging almost every small investors mind on Dalal Street is whether one should stay away from the equity markets for now given the uncertainty, in domestic as well as global markets. While we are dealing with apathy, exit of emerging markets and wait for things to take off after the elections in May, globally, Europe is facing risks of deflation, and China is also threatening to grow from a niggling migraine to another unbearable pain.  

There is some trouble and lots of uncertainty looming large on the horizon. But does one run away from trouble like the way Arjuna wanted to from the battleground of Kurkshetra? Or do we stick around and emerge victorious and do what is right?  Arjuna was angry, grief stricken and wanted to run away. In the Bhagavad Gita, Lord Krishna extolled that bravery is the right way - face the war when it is inevitable and do your duty. And that is what Arjuna did and that is probably what we as investors should also do. History has proven that wars or even the fear of war provides the biggest business opportunities which if things were hunky dory and peaceful would have never come up. Ditto for the markets – when the chips are down, the opportunities are immense and if you have faith and conviction in the long term story of India, then well, there could not be a better time than now to buy into blue chip stocks which are going abegging. But today, unfortunately, business confidence is much below that when Lehman collapsed in 2008 and that is creating a sense of panic. Yes, going ahead, we could see more pain ahead and more selling, both by FIIs and DIIs.

Many feel that under the present circumstances, markets are not a good idea any more. There is so much uncertainty and volatility, one does not know the direction of the market. And with so much confusion in mind, many feel that it is best to remain in the sidelines as an onlooker.  Another growing perception is the change in the definition of ‘long term’. Earlier people bought stocks and forgot all about it for a few years. But today, the perception of long term is less than two years. How can uncertainty in present circumstances change the measure of time?

When there is so much confusion, it is best to calm down and look at one’s objectives. If the objective is to trade, well, one has to trade off risks v/s uncertainty and be willing to face the consequences. One certainty which a trader looks at currently is – risk. But if one is an investor, which is what one should ideally be in these turbulent times, then making choice picks in strong stocks is the perfect thing to do. 

Fundamentals never go out of fashion. New technical theories might come up yet, the way we assess the fundamentals of a company remains same, irrespective of the good times or the bad times. By fundamentals we mean healthy earnings, management quality, past track record, macro conditions of the industry, debt undertaken, cash balance and above all, reputation. Today, integrity is the single most important ingredient which can make or break a company. And once fundamentals are in place, a five year time span still remains the best long term time measure.

Yes, buy and hold continues to work, paying no attention to day-to-day happenings.  Equities as an asset class always tracks earnings growth. Thus if the earnings have grown by around 15%, the returns on stocks should also be around the same level.  At present, expectations, on earnings front are good abd that to some extent will be the driving factor. The GDP numbers on the 28^th of Feb and then track of monsoon will rule the moods.

Always follow the SIP method buying and buy quality stocks like HDFC, HDFC Bank, Century Textiles, GlaxoSmithKline Consumer, ITC, L&T, Reliance Industries, Maruti, Tech Mahindra. Avoid PSU banks.  Also remember, invest equally in FDs – bank and quality companies and of course PPF.