Authored by Amit Jain
This current market rally started on March 24, in midst of an extremely distressing macro-economic environment when the entire world was passing through unprecedented lockdown, which history has never seen. At that moment of time, most of the Investors had a feeling like the world is coming to an end.
I remember when I was advising our investors to invest at that moment, and then how sceptical they were as everyone was feeling the fear of the unseen. This current living human generation has never faced such a health crisis in their life.
Last time human civilization witnessed such a worldwide pandemic was around 100 years back after World War-1, hence everyone was too fearful to act or to take any Investment decision.
However, in that extreme pain, everyone forgot the basic principle of investment and that is “Invest when there is a virus” in the market.
Some of the investors who took that courage to invest at that panic moment, they already have generated more than 50 percent ROI within six months and now exiting the market. It is a fundamental principle of the market “higher the risk, higher the returns”, but in the short term, negative emotions block Investors decision making power to see through these available opportunities in the market when there is a virus in the market.
They are always entry points across asset classes in the right proportion. At this point of time, markets look fairly valued, hence a large proportion of inventors money should be in safe asset classes like arbitrage funds or debt funds for time being. This is not Investment; it is merely parking of funds to safeguard your gains of the last six months.
In our view the market may have once again good entry points before the end of this calendar year. So investors should move their money in equity schemes at every entry point to average out the cost of their investment during the next three months.
While making an investment, investors should be very cautious on underlying industry and business model of the company, as post-Covid-19 era leaders of industry will become stronger as they will have better survival chances compared to a small player within the same Industry. Also in our view, there are only a handful of Industries and companies which will get back to pre-covid-19 levels in the financial year 2021-22; rest all may continue to face challenges in the medium term.
As an investor by the end of this financial year, one should have 60 percent exposure to domestic equity (in right sector & companies), 20 percent international equity at appropriate entry points, this will diversify Investors portfolio across world geography.
It will also act as a hedge against any rupee depreciation on an ongoing basis, rest 20 percent should be invested in Gold. This portfolio mix should be accumulated in the next six months at every downfall in each mentioned asset class.
Once it is done, then you should hold this proportion of the asset class for the next five years, however, periodic rebalancing needs to be done in the domestic equity portfolio by keeping an eye on underlying sectoral performance along with other macro-Economic factors.
Amit Jain is Co-founder & CEO at Ashika Wealth Advisors
First Published: IST