Creating a new normal…

The Indian markets have been scaling new highs with NIFTY remaining above 10,000 for over a month. The current rally in Indian market is fuelled by strong liquidity from domestic investors. As strong inflows continue into domestic mutual funds reforms initiated by the Modi-led government reaffirm the faith of foreign investors ( as evident from a rating upgrade from Moody’s) in the India growth story which could well stay for another 7 years.

Domestic mutual funds continue to attract flows from investors with assets under management (AUM) of the industry increasing by Rs.51,148 cr in October to touch a new high of Rs.21.41 lakh cr. As per data from the Association of Mutual funds of India (AMFI), equity-oriented mutual funds (including arbitrage funds), balanced funds and equity linked savings scheme (ELSS) funds saw net inflows of Rs. 21,900 cr in October. In September, these funds saw inflows of Rs.27,077 cr. For the first seven months of the current financial year, cumulative inflows into these funds have tripled to Rs.1.51 lakh cr as compared to Rs.46,840 cr in the same period of the previous year.

Foreign institutional investors (FIIs) who took a break from buying Indian shares in August and September are returning after recent government announcements such as the Rs.2.11 lakh cr PSU bank recapitalization plan. Over October and November so far, FIIs have invested a net of $1.9 bn in Indian equities. US-based Moody’s on 17th November upgraded India’s sovereign credit rating by a notch to ‘Baa2’ with a stable outlook citing improved growth prospects driven by economic and institutional reforms. This is expected to further boost FII investments into India. For the year to date, they are buyers to the tune of $7.4 bn.

September quarter results for most companies have already been declared & results have largely been in line with expectations. After its muted performance in the June quarter due to the transition to GST, India Inc is getting back on track going by the September quarter results. Post GST implementation GDP growth numbers, IIP & PMI index have all taken a hit, how they recover over the next few months will also be closely monitored. With real estate and gold giving subdued returns, investors have been looking at equities as an investment avenue. Thus in spite of the markets reaching all-time highs & rich valuations, strong cash inflows into the equity markets should continue for some time.

The markets seem to be consolidating above the 10000 NIFTY mark. Corporate performance & economic data which comes in H2FY18 will be critical. Last year post de-monetization Q3 & Q4 numbers for most companies & the economy were impacted. Thus the general expectation is that H2FY18 numbers should be significantly better y-o-y. Any correction in quality stocks is a good opportunity for investors to enter or re-enter the stock markets at lower prices if they had missed out previously. Given that the markets are at all-time highs one needs to tread with caution at current levels. For long term investors one should keep accumulating on dips as the markets are braced for significantly higher levels over the next couple of years.

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’

Common mistakes investors make in equity investing

The advent of online trading platforms has eased investing in shares for everyone. This ease is encouraging many investors to take a DIY (Do-It-Yourself) approach rather than depending on financial advisors/brokers/dealers for advice. However, the lack of understanding about capital markets leads many to take wrong investment decisions. Here are some of the common mistakes that many investors often make.
Looking for low value share prices/penny stocks 
I have often seen that people associate a lower price of a share to lower valuation/cheaper. For example they feel a share valued at Rs.10/share is cheaper than a share priced at Rs.100/share. Buying shares is distinctively different from buying products from the local market. What needs to be seen is the relative valuation of the company in relation to its earnings, face value of shares and number of shares outstanding in addition to growth potential of the stock for the investment made. For example if you invest Rs.10,000 in a stock valued at Rs.1000/share you will get 10 shares & if the share is priced at Rs.10/sh you get 1000 shares. Now if the Rs.10 share goes up to Rs.15/sh or the Rs.1000 goes up to Rs.1500/sh you make Rs.5000 profit or 50% returns on your investment irrespective of which share you had bought. Thus percentage returns on your investment is what matters rather than the prices of one share.
Over-expectation from equity investments 
Most investors start with unrealistic expectations from equity mutual funds, especially during bull markets. However, returns generated during bull market are not sustainable in the long term. This leads many to sell their shares at a loss during market corrections or bearish market phases a time when they should actually buy more shares.Investors should follow a proper asset allocation strategy as per their needs. As equity investments are susceptible to market volatility, invest in shares only if your investment goals are 5 years away or more.
Not diversifying enough
Many investors, especially first time investors invest their entire money in just one or two stocks. However, instead of putting all eggs in one basket, you need to diversify their investments across atleast 10-15 stocks.Thus, even if a particular stock underperforms, your investments in other stocks may save the day for you by providing higher returns. One way of building up a portfolio for new investors would be to initially invest in equity mutual funds through a SIP & once you have accumulated a decent sum of money you can liquidate it to build up your own portfolio of 10-15 stocks.
Donot Leverage
Greed is bad, Investors should invest in cash and restrict their exposure to what they have rather than leverage their position by taking multiple times exposure. If with a capital of Rs.100, you manage to buy shares worth Rs.1000, in a bull market you may make a killing, but when markets reverse you will be killed. God forbid, even if the stock is down 10% your entire capital will be wiped out. Without leveraging, even if a stock were to fall 30%, you will still get an opportunity to bounce back and make up your losses over a period of time.

Patience & Discipline is key
Investors are generally focused on short term trading and short term gains and not having the patience of value investing. We must remember that neither Warren Buffet nor Rakesh Jhunjhunwala become what they are overnight through short term trades. Patience and disciplined investing is the key to stock market success.The basic rule of making money is to BUY LOW- SELL HIGH, but retail investors seem to be doing just the opposite. Instead of adopting a ‘trend is your friend’ approach,, investors would be better of adopting a contrarian approach in buying when the markets fall and wait patiently for the markets to recover. In the words of Warren Buffet- “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”.Investors must invest with conviction, the shares they buy, have the mental strength to tide over short term losses before things turn around. Remember, a share is actually a “share of ownership” of a company, and one should tread it that way, invest as if you are investing in your own business and make it grow over time forgetting the short term ups and down that any business may have.

 Just as there are no short cuts in life, there are no short cuts to making money in stock markets.No matter what happens markets will always give you a second chance to recover your money even if you go wrong once, so just be disciplined, be patient and donot panic with your investments & respect the markets. HAPPY INVESTING!!!

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’