THE SPIRIT OF INVESTMENT - STAYIN' ALIVE!
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 and complete breakdown of governance by the ruling Govt, globally, Europe is a big headache while China is also threatening to grow from a niggling migraine to another unbearable pain.
Yes, there is trouble 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 extoled 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.
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 circumstance 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.
The positives which one can look forward to are – firstly the falling crude prices which, had the rupee not depreciated so fast, would have resulted in decline in the current account deficit. A $10/ barrel fall in crude, will bring down reduces India’s current account deficit by 0.4% of GDP and fiscal deficit by 0.2% of GDP. Secondly, the G-8 summit indicated that they did not support Greece leaving the Euro zone and though this was just verbal, with no follow up action, it at least sent the message across that for now, it seems like Greece will not drift apart. We see that relief rally on the bourses today but unless this is followed up with measures and actions soon, this too will fizzle out.
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 at a negative and hence the PE valuations will only go down further. And that, which is the current time, is the best time to stock up on good, sound stocks.
In these times, be stock specific. As our editor, Mr.SP Tulsian advises, best to put 50-75% of your money in quality frontliners like HDFC, Astrazenca, Kennametal, Akzo india , Shalimar Paint, Thomas Cook, IDFC, Exide, Thermax, Yes Bank, Century Textiles, Kalyani Steel, Manappuram Finance and the rest you can invest in a basket of FDs and of course PPF.