Stock Markets falling-Where to invest now?
Stock markets are falling. SENSEX is at 17,900 levels. 2300 points down in last 4 weeks. Your mutual funds are showing negative returns. You must be up-set with your investments. Gold prices are going up. If you think to book losses and come out of stocks or mutual funds, then you are one among the thousands of investors who lose their money every day with this strategy. Where to invest now in falling stock markets?
Can we invest in stocks now?
Yes of course. I am not saying that your money would get double or triple in next few weeks or few months after market recovers. Look for SENSEX or NIFTY stocks. Which stocks are falling heavily? Is it temporary phenomenon or fundamentally something is wrong with the company? If this is temporary situation, why not you buy such stocks? Good stocks are purchased not when someone is buying, but when someone is selling. Buy stocks when stock markets are falling and not when markets are reaching its peak level. Buying index stocks during correction is the good strategy to make handsome returns in long run.
Also read: 10 investment mistakes you should avoid
Now don’t ask me a question what is the bottom level of SENSEX so that you can buy stocks. No one would be able to predict this. If your broker is telling you the bottom level of SENSEX now, he is fooling you.
Now the question is how to select winning stocks. I agree that it is not that easy.
Choosing SENSEX stocks could be one strategy. E.g. TCS has shown a high peak of Rs 1,900, now currently it is trading at Rs 1,700. Means 10% down from its peak level. But at what level one need to buy. You may adopt different strategies like accumulating at various price levels from now and each and every dip should be looked as buying opportunity.
Choosing mid-cap stocks could be another strategy. The risk is they may be winners or losers in long run. You should exercise this strategy with caution.
Can we invest in mutual funds now?
Your mutual fund portfolio would have shown a dip of 5% to 10% in your investment amount during this stock markets fall. You might be thinking of exiting now and investing in bank FD or post office schemes hoping you would get at least 8% to 9% returns. This is the general tendency among the investors who would invest in mutual funds to make money, but finally they would lose and exit mutual funds and blame that they are not good for investments. Let us consider two scenarios under falling stock markets.
Scenario-1: You have invested in X mutual fund scheme. This mutual fund has invested in 3 large cap stocks. 3 Stocks are falling. Your mutual fund scheme would have exited from Stock no.1 and retained stock no.2 and 3. Blood bath completed, now markets are reviving. You keep pumping fresh investment. Stock no.1 has gained faster. But your mutual fund scheme has not gained much as it has already exited from stock no.1. So your mutual fund returns are growing at slower pace when markets are rising.
Scenario-2: You have invested in X mutual fund scheme. This mutual fund has invested in 3 large cap stocks. 3 Stocks are falling. Your mutual fund scheme has NOT exited from any stocks and retained all stocks. Your mutual fund investment value reduced by 20%. You keep pumping fresh investment. Blood bath completed, now markets are reviving. Stock no.1 has gained faster. So your mutual fund returns are growing at faster pace.
If you observe any of the above two scenarios can happen to your mutual fund investment. What do you see as end result? Returns growing at a slower pace or at faster pace. Means there are more chances that you would get returns, it is the question whether they are good returns or moderate returns. If you choose out performing large cap mutual funds or diversified funds, you would definitely win.
Can we invest in gold now?
When I have written an article about investing in gold during Mar-13, the gold prices were at Rs 2.8K / 1 gram. My recommending was to keep investing through SIP / SEP regularly. It has fallen to Rs 2.5K / 1 gram within 2 months. Several investors posted saying what to do. My recommendation was to continue investing for each and every dip. Now gold prices climbed to Rs 3.2K / 1 gram. Should you invest now? My answer would not change even now. Every time there is fall in stock market, gold prices would go up and vice versa. I am observing this for several years. Keep investing every month through Gold ETF’s to avoid any market volatility. Your objective is not to make money in short term. If yes, stay away from this.
Also read: Target Investment Plan (TIP) by ICICI
Bank fixed deposits / RD’s
Investors think to pull money from stock markets and put them in Bank FD. Even I have done similar things in the past. This is the time where you need to break your FD/RD and slowly start pumping your money into stocks and mutual funds. You should consider the risks involved in this before doing it.
Conclusion: I am not saying put all your money in stocks now. What I am saying is to utilize this opportunity and invest in winning stocks. You should start accumulating such stocks to keep them for long term.
Readers, what are your experiences in falling markets? Have you invested in such market scenarios. What worked well and what not?
If you enjoyed this article, share it with your friends and colleagues through Facebook and twitter.
Suresh
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Hi Suresh,
I am looking for a investment option (one time- ex 1 lakh) which gives me high return after 10+ years.
Please suggest one that will suitable to me.
//Anoop
Anoop. Regd One time investments, I have written an article which would be useful for you. Based on your risk appetite, you can invest here. https://myinvestmentideas.com/2013/01/best-investment-ideas-in-india-to-invest-lump-sum-amount/
Dear Suresh,
Thanks for the interesting articles. I am a regular visitor of this site and the information available is very useful.
Need your advise. I am in the highest income tax slab. An FD of Rs. 3 lakh just got matured which I would like to invest and need your advise on where to invest this money where I could get good tax free returns. I don't have a Dmat account and frankly dont understand the stock market well. I can block this money for another 3-5 years. I would also like to make some monthly investment of Rs. 10,000 pm for the next 1-2 years to gain some good tax free profit for a holiday with my family. Please suggest. Please do mention the exact name of the investment as I am new to these investments and have always been investing in bank FDs :-(.
Thanks
Hi Kirsty. Thanks for your valuable comments
1) To get tax savings, you have few options a) Invest in tax saver FD where you get 9%+ annualised returns (5 years tenure). There are almost all banks offer these schemes which are safer b) You can invest in PPF (15 years lock-in) or NSC (5 years) wherein you can get 8.5%+ annaulised returns c) If you can take some risk, you can invest in equity linked saving scheme mutual funds (ELSS MF’s). Can Robecco tax saver or Religare invesco tax plans are good ones. The lock-in is 3 years for ELSS funds.
2) If you would like to invest or 1 to 2 years, my suggestion is to invest in bank FD (9%+ pre tax returns) or Debt funds like SBI Dynamic bond fund or IDFC Dynamic bond fund etc.
Thanks for the quick response. I am already investing on PPF to the maximum. I thought the tax saver FDs will not give me a tax free return? I am looking for an investment where there is no tax on the return, as I am in the highest tax bracket, I am looking for an investment where the returns do not attaract any tax. I heard almost all mutul funds if kept for more than 1 year offer tax free returns. I am looking for an alternative to the bank FDs where I have to pay income tax on the return and I am fine in getting the same 9-11% return (play safe) but it should be tax free and legal 🙂 and same for the monthly investment.
Thanks
Yes, Tax saver FD’s only save income tax u/s 80C and returns from them are not tax free. Please refer this article to get tax free returns.https://myinvestmentideas.com/2013/05/best-tax-free-investments-in-india/
Dear Suresh,
You have rightly said that a balanced approach is needed in the falling market because we do not know where this mayhem will stop.
As retail investor we should look at sensex stocks only where the chances of capital wipe out is less. Stockes like Tata Steel ( Although debts is a bit at higher side but the chances of metal market revival looks positive and a rally is possible), Tech Mahindra, TCS, HCL, Tata Motors looks good at current levels. Infy is a little stretched now but can be a good buy at 2600-2700 levels.
Tata motors can be a ggod buy at 260-280 levels but high risk takers can buy at current levels also if you have a vision of atleat 5 years.
We should avoid stocks like MCX, Financial Technologies, Suzlon, Unitech, HDIL,DLF, Jai Prakash etc because of high risks involved. The stock prices may look cheap to you but chances are that many of these players will become another Kingfisher because they lack corporate governance and are entangled in litigations and controversies.
Goodluck !
Sanjeev
Thanks Sanjeev for your valuable feedback.
Dear Suresh,
can you recommend any stocks to invest for long term in current scenarion?
Regards
Ashith
Ashith, Currently, I am working on this. You would see an article early next week
Thanks. will await for your article.
Hi Suresh,
I've always been optimistic about Indian markets and that's the reason I didn't stop my SIP in Mutual Funds even during the 2008/09 financial crisis. Rather I had increased my SIP contribution at that point of time (even when I saw my NAV going down). It was a solace at that point that it was a global phenomenon.
But the current situation scares me because it is more confined to India alone – Markets in turmoil, rating agencies downgrading Indian equities, Rupee on downhill, Economy in mess,Govt complacent….and so on. All my equity MF investments are in deep deep red. Even my debt funds are in negative returns. Now I'm turning pessimistic. I now ask myself 'Did I make a mistake of deciding to invest in Mutual Funds?'
Yes I do agree that doing fresh investments now may be a good idea (considering the markets may go up 2 years down the line). But what about those who are already investing (and have invested from 3-4 years). Do you think investors like me will get good returns once the markets (and economy) pick up in future? My targets are long term.
Regards,
Anand.
Hi Anand, Agreed that current situation is scary. If you go and observe in last 10 to 15 years, you would see several such instances. Some were confined to India and some where global. This is where portfolio diversification would help you in long run. Do not put all your investment in one basket like mutual funds itself. Also when you invest in large cap or diversifed funds, they would provide good returns in long run. If you observe HDFC Top-200 as an example where in 15+ years, it gave 20%+ annualized returns. In last 15 years several market cycles went. I personally say that you should stay invested in various investment options for long run.