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Wednesday, October 11, 2017

View of an inquisitive average Indian investor

Yes, that is about me, the restless soul whose twinkling eyes forever stuck at the nifty graph! :)

2016-2017 have been quite a roller coaster ride for Indian Stock markets. Various factors have driven the Nifty to all time high and the bulls are not ready to hang their boots just yet. Having a sixth sense and lot of love for the markets (not to be confused as an expert, I am just an enthusiast in Investing) the current valuation makes me jittery. Keeping some extra bucks aside each month has been a practice for sometime, I am itching to invest it in the markets. However there are number of factors which is driving my mind towards fixed income space, here are few of them. 

Nifty 50 is trading above 25 PE. This is a dangerous level. In markets language, or whatever I can make if it is a valuation of 12-14 PE ratio is some how a fair valuation as an entry point. I am going sector agnostic. Every sector has its own metrics to decide on, for FMCG it is a little higher at around 18-22 PE. Trying for a better investing approach, I looked at individual stocks at specific sectors (I am talking about my favorites) are trading above 40 PE. All companies are good. But every thing has a fair price, premium for a better business proposition, but at the obnoxious valuation they are trading at, I feel its best to stay away till markets correct or company performance catches up with the current valuation. 

India is at its 'super feel good days'. Everything looks beautiful with new initiatives, disruptive steps by government, and continuous inflow of domestic institutiinal investors through mutual funds. Evergreen Indian consumption story is now selling double with Make In India tides. FII selling is not having any impact on the markets as domestic institution buying in every opportunity and pushing up valuations. Too much optimism may not neccesarily result into too much profit.  I am better off as a cautiously optimistic individual. 

GST not settled just yet, I believe this is an teething issue, and certainly believe, some of its impact should come on the coming quarterly results and market movements, giving some opportunity to buy in dips.

In the given scenario I often feel uncomfortable to buy new companies for my portfolio. But, my investment centric mind doesnt let me stop. I have figured out following few options to cautiously participate in the market yet staying away from being over zealous.

1. Continuing my SIPs in equity and hybrid mutual fund schemes. These are long term investments. I am continuing these for over 3 years to 5 years. Hence, the average cost of buying the units is pretty low compared to the current price. A dip in the market unlikely to blow away my capital.

2. Buying add on MF units on dips. Though overall marker remains highly priced, there are days when consecutively 2 or more trading sessions have been victim of profit bookings. I make some add on investments in my existing mutual fund scheme. I dont believe in bottom fishing, hence stick to a minimum amount and maximum 2 trades per month, discipline is the key for long term wealth creation. I even buy the nifty bees and junior Nifty, the Index funds on those days.

3. Investing in quality IPOs  - Given the optimistic markets condition, there have been an avalanche of equity IPOs this year. Being a small investor, I stay away from SME IPOs, as it has a huge monitory commitment (upwards of 1 lakh rupees for each). But I am always in look out for good IPOs. Few IPOs I applied for this year were BSE, CDSL, MBL, Dixon, Capacite, D-mart. Ofcourse I am not the only intelligent retail investor. Hence, most of the issues were super success with huge multi-times subscriptions. Hence, I was lucky to get three of the ten IPOs I applied for. No qualms to say, I made an average 60% profit on my investment and exited on the very listing day. One of the reasons of exit is IPOs are often highly priced compared to their valuation, so opportunity of cashing in on listing day looks safe to me.

4. I did invest in some debt funds. Interst rates going southwards, that was the only way to earn some extra bucks on cash. Fixed deposits rates are at multi year low, liquid and ultra-short term debt funds are at position to give 1-3% extra income on your idle cash. This money will be also used incase there is a significant correction in the market.

5. Though I dont recommend the stocks per say, but still these are learnings. Crisis many a times turn out to be an buying opportunity in equity market, if the stocks are like Infosys and JKumar Infra. Sudden news of shell companies being banned and erronously including JKIL in the list resulted in shedding a chunk of market cap on JKIL. It has given a brilliant entry point to the investors. Infosys management issues also has a similar story to tell. However I am not a certified stock analyst and their future growth potential needs to be studied well incase one makes a buying decision.

Investing is an art and science, and I am learning it with time. The insights and experience I share in hope that it eases some stiff negative and scary ideas about investing. Financial planning and managing money is fun.

Here is a low down on few more ideas you can look at at this point of time, are - 

1.If you have an existing investment in the market with a high profit in the book, and feel the PE is stretched beyond comfort level.You may look at booking partial profit if not full (assuming the equity investment is more than a year old,and the return is tax free). Parking this money in liquid funds/short term debt funds is wise, untill you see a good bet. If you are savvy investor, you can consider parking someportion in the FMCG stocks (I call them Evergreen).

2. If you have accmulated cash, and you may also park the cash in liquid fund, and using STP (systematic transfer plan) invest in equity mutual funds.

Would love to hear what are you doing in your investments given the current market conditions. Share your ways of inveating. Look forward to hear. If you like the post, do share and comment.  

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