Monday, June 12, 2017

How to balance fear & greed when stocks are at their peak...

Courtesy : Economic Times
 The domestic equity market is on a roll with the benchmark indices currently hovering at all-time highs. The highlight of the current rally is undoubtedly the active participation of domestic institutional investors (DIIs), who, along with foreign investors, have collectively invested Rs 84,793 crore (year-to-date) in domestic stocks for the year till May 31, 2017. (Source: Sebi)

Though it’s heartening to see retail investors embrace financial products, especially invest via the SIP route, now is the time to take a look at one’s portfolio. Historical pattern suggests whenever the market rallied on account of increased liquidity, it has always turned volatile in the short run.
From a valuation perspective too, the market is no longer cheap. For example: the trailing price-to-earnings (PE) multiple for the S&P BSE500 index is trending above its long-term average with more than 25 per cent of its constituents trading at 40 times their trailing 12-months earnings, which is the highest ever for these names. (Source: BSE)

In such interesting times, it is imperative for investors to revisit some of the investment fundamentals; the important one being striking the right balance between greed and fear while investing. It is always better to exercise caution than be sorry and regret later, particularly, when equity prices are soaring at an all-time high. This rally is happening especially at a time when earnings are yet to catch up.

Over the past three years, India Inc’s earnings growth has not lived up to expectations due to multiple factors. However, going forward, this landscape is likely to improve given the positive macro-economic factors and a steady recovery in the economy. Also, the positive effect of the recent government reforms is likely to further help the recovery process.

Once the earnings growth materialises, there is a possibility that valuations may get realigned with historical valuations.

As Charlie Munger, American investor, businessman, and well known philanthropist, aptly said, “All intelligent investing is value investing – acquiring more than you are paying for. You must value the business in order to value the stock.”
When the market has been on a roll, investors often tend to seek more gains from their investments. With the market inching upward to new all-time highs, investors generally tend to become greedy expecting further gains. This may not necessarily be the right move and calls for rebalancing of portfolio.

As the value of the equity component of your portfolio goes up, your original balance can get skewed. However, investors should always keep in mind that no asset class will move in one straight line, be it upward or downwards for a long time. This holds true, especially for financial assets, as the volatility is more pronounced in them.
At this point, a retail investor should ideally take a hard look at one’s portfolio. With the rise in the market, the portfolio value may have swelled and one may be tempted to make fresh investments to capture most of the opportunities offered by the market.

But this is the time one has to be cautious and fortify the gains. Given this objective, the right thing to do for retail investors would be to invest in dynamic asset allocation funds/ balanced advantage category of funds. These funds invest in equity or debt as per the attractiveness of that particular asset class and dynamically manage the same. When equities are cheap, the fund allocation towards equity increases in order to tap the available opportunities and vice-versa.

The construct of these funds ensures that an investor has exposure to both debt and equity asset classes within a single fund. The matrix used to arrive at the proportion is generally based on relative attractiveness of each of the asset class and, hence, these funds are dynamically managed.
While current market valuations do appear expensive from a short-term perspective, as the market has more or less factored in this year’s earnings growth, long-term investors can consider remaining invested as the economic growth rises to a robust 7 per cent plus, making India an attractive investment destination. Further, the bold economic reforms embarked upon by the government have set the stage right for good times for the Indian equity market.


The domestic equity market is on a roll with the benchmark indices currently hovering at all-time highs. The highlight of the current rally is undoubtedly the active participation of domestic institutional investors (DIIs), who, along with foreign investors, have collectively invested Rs 84,793 crore (year-to-date) in domestic stocks for the year till May 31, 2017. (Source: Sebi)


43 comments :

  1. Dear VP ji
    What's your views on dishman pharma
    Post merger.
    Also on sun TV , REC

    ReplyDelete
  2. Hi Sir,

    What is your view on kilpest since it is focusing on molecular division with improving opm and profit.

    Thank you

    ReplyDelete
    Replies
    1. 3B Blackbio is in a potential business

      Delete
  3. sir your views about emkay global financial services ?

    ReplyDelete
  4. Dear Guruji, Skm egg has recently launched new product i.e ready to eat egg paneer,do you think now they are now concentrating on domestic market.

    ReplyDelete
    Replies
    1. This is the first time company introducing a branded product in consumer market. Introducing a new product need lot of efforts to succeed , let us wait and see

      Delete
  5. VP Sir,

    What is your latest view on Meghmani, shri Ram Multi and seasonal trend in Sugar stocks?

    Prashant Patel

    ReplyDelete
  6. Hi VP Sir,
    Kindly share your view towards
    1. Mangalam Seeds Ltd
    2. Vadivarhe Speciality Chemicals Ltd
    3. Focus Lighting & Fixtures Ltd

    i am observing few SME platform companies are not producing Quarterly result they give half yearly reports. can you put some light towards this.

    Thanks
    Anil

    ReplyDelete
    Replies
    1. Like Vadivarhe, stock appreciated substantially in recent times so some consolidation is a possibility now.

      Delete
  7. what is your view on granules as the compamy is diluting shares and pledgin 80% shares

    ReplyDelete
    Replies
    1. Stock returned more than 20 times from suggested level ( adjusted to stock split) , as of now not tracking.

      Delete
  8. Hello VP Sir,
    I bought 4000 shares of MIC Electronics averaging at 14.85. now the stock is down to 10.30. is it wise to hold for long term or better to book loss?

    Thanks
    Ramakrishna Madugula

    ReplyDelete
    Replies
    1. Seems debt converted shares are directly coming into market which may create pressure on upmove

      Delete
  9. Sir, ur view on penyam and shri digvijay cements. Thanks

    ReplyDelete
    Replies
    1. Personally Anjani Portland is the preferred one from small cement pack.

      Delete
  10. Sir any view on murudesh cremics ??

    ReplyDelete
  11. Dear Sir, pl. Your views for Ramky or Purvankar for long term at CAMP, thanks & regards

    ReplyDelete
    Replies
    1. Not tracking Purvankara , opinion about Ramky mentioned many times in the past and no change as of now.

      Delete
  12. Hi Sir, Ypur view on Shri karthik paper and Pennar industries

    ReplyDelete
  13. Sir, i am new to this blog. i would like to have your opinion on BDH industries, Kesar terminal, saven technologies and sree rayalseema Hi-strength. thank you for your kind advise

    ReplyDelete
    Replies
    1. Sorry not tracking above mentioned companies

      Delete
  14. Hi sir ,

    What is your view on camphor and allied products, Ador welding , mafatlal...bought at lower price on your reco...with good profits...can we still hold or its time to book profits...?

    Regards,
    Kartheek

    ReplyDelete
    Replies
    1. Out of these Mafatlal's business not improving as expected

      Delete
  15. Dear Sir,
    What are your current views on Amines and Plasticizers Ltd. Its trading at 52 weeks high and has grown more than 250% since you last recommended.
    Thanks

    ReplyDelete

  16. Dear VP

    When stock doubles can we shift principal AMT to balanced mutual funds or should we buy more good company stock with that principal AMT leaving cost free stock in open mkt pl comment

    ReplyDelete
    Replies
    1. Generalization is not practical, depends on one's risk taking capacity.

      Delete
  17. Hello Sir,

    Please give your view on PTC financial services and Bhansali Engineering if you are tracking them

    Thanks.

    ReplyDelete
  18. Dear sir, pls provide your comments on TCI & Ujjivan finances?

    ReplyDelete
    Replies
    1. Both are good companies in respective sectors , but as an investment, valuation or some sector related concerns are there for the time being.

      Delete
  19. Hi VP,

    Pls suggest if good time to invest in Guj Borosil now?

    Regards,
    Vikram

    ReplyDelete
    Replies
    1. Already gained 10 times from suggested level, neutral at CMP

      Delete
  20. Dear sir
    What's your opinion on polson limited for long-term.
    Thank you

    ReplyDelete
  21. Dear Vp,
    Do you have any recommendation on Hathway Cable

    ReplyDelete
  22. Do you have any view on Aurobindo Pharma due to its recent downfall and sametime approvals of medicines?

    ReplyDelete
  23. Dear sir on Goodricke group your advise Tks

    ReplyDelete
    Replies
    1. Good company from sector , but sector itself is cyclical.

      Delete

Followers

Tweet TopOfBlogs