Going into an election year, there were expectations of multiple populist measures in this year’s interim budget. However, the government needed to meet their fiscal deficit target at the same time. We believe that the government has done a fine job of trying to balance the benefits across the spectrum.
Populist measures such as the announced mega pension plan combined will hugely benefit the unorganised sector. Meanwhile, the government looks committed to its fiscal target of 3.4 percent for FY19.
Following these developments, the Reserve Bank of India (RBI) changed its stance to dovish and cut rates by 25 bps. Budget is likely to be a statement of accounts. Hence what remains important from an investor’s standpoint is summarised by the following quote: "Time in the market is more important than timing the market.”
One basis point is a hundredth of a percentage point.
A common expectation from equity investments is that they must generate approximately 15 percent compound annual growth rate (CAGR). Yet, what is rarely spoken about is the arduous journey that investors must go through in order to see these returns blossom.
Hence, we believe that writing down how one must behave in different market cycles while keeping an eye on the long term objectives is probably the best way to ensure we stay invested through this journey of wealth creation, thereby avoiding impulsive decisions.
Recently, there have been certain negative developments, especially in the debt market space. This has caused some tension amongst investors. These events are another example of how an investment charter would reduce risk and ensure such shocks don’t hurt one’s portfolio.
In the equity space too, volatility is likely to continue to remain a factor for every investor, especially with events like the elections lined up. Investors seem to think long term only until the next bear market strikes. Hence, it is necessary for investors to not fall prey to a negative bias and avoid any temptation to redeem in case of falls.
On the flipside, investors must avoid deploying lump-sum investments in euphoric phases when the markets rally extensively due to sentiment. To ride inevitable volatility along the way, multiple asset classes can be given allocation. It is prudent to note that more than 100 F&O stocks are down up to -90 percent from the rates which they had when the Nifty was at 9,000 levels and this signals a good opportunity for investment.
Taking into account these factors and the potential growth India is likely to witness in the upcoming years, we urge investors to “Stay the course” so as to let their portfolios blossom to their full potential.
For equity investments, we continue to recommend a staggered approach to investors over the next few months and capitalise on any sharp decline through incremental deployment.
We favour a combination of multi-cap strategies and selected mid and small cap strategies for equity investments. For fixed income investments, risk-reward remains tilted towards high-quality accrual strategies/FMPs with duration up to three to four years.
Ashish Shanker is executive vice president and head products, Motilal Oswal Wealth Management Ltd.