Should you stay invested or exit from stock market now?
Mr.Narendra Modi won. BJP got clear majority and would form a new stable government in India. What next ? What does this mean for you as an investor ? Can you stay invested in stocks and mutual funds or do you need to exit from stock market now ? Stock market gained 1000 points on election results day, but finally ended up only 200 points up. Does this mean we expect any market correction in next few days?
What analysts are predicting?
There are only two possible scenarios what Analysts are predicting now. With stable Government in India, Stock market Sensex can reach 26K or 28K or 30K by end of 2014. Some predict that we would see market correction now before we see market reaching new highs.
Why stock market could see new highs by the end of 2014?
The new Government would frame new policies, guidelines and correct all earlier guidelines which were unfavour to the growth of the Indian economy. Such decisions could be done in the next 3 to 6 months time and any such decision which impacts the growth of India could be seen in stock market growth too. Markets have been waiting for a “positive surprise”. There were no such positive surprises in the last 3 to 4 years. Nifty gave less returns compared to a fixed income securities in last few years. New Government is expected to bring several positive things, hence markets would react positively.
Why stock market cannot see new highs before the end of 2014?
Any new policies framed by the Government would be implemented immediately, but the results would be seen only after 1 to 3 years time frame. Hence we cannot say that stock markets react positively to all decisions of the new Government. It may wait for the results before it responds. Currently stock market moved from 18K Sensex to 24K which is 35% growth. Some analysts predict that Stock market may take correction before reaching new highs in 2014.
Well, all this is fine, I am an investor, what should I do now?
I have the following suggestions. These suggestions may not be comprehensive, but a few of them which are in my mind.
1) What should a regular stock market investor do now?
If you are regularly investing in stock market without looking at where market is going, you should continue to invest. You should look at market correction (1000 points to 2,000 points fall in a week) and book part of the profits. In case of major correction, you should exit. You can re-enter at lower levels (difficult to say what is bottom level).
2) What should a short term investor do?
If you are a short term investor, don’t bet on the market now. You should exit appropriately during rallies. There are chances that you would incur losses if you wait for some more time.
3) I invest in Mutual funds, what should I do?
- If you are investing in large cap mutual funds, you should have seen that your mutual fund returns are not growing much compared to stock market returns in last 15 days to 1 month. The reason is mutual fund schemes are booking profits. Hence, unless you have any short term commitment of money, I don’t see any reason for you to exit mutual funds now.
- If you are investing in mid-cap/small-cap mutual funds, you should have got good returns by now. During stock markets fall / downtrend, mid-cap/small-cap stocks take a huge beating. About 5% of the fall in the Sensex, you could see 10% to 20% fall in mid-cap or small cap stocks. Hence investors in midcap/small-cap mutual funds may be little cautious. While mutual fund house would make every effort to come out appropriately during a market crash, you should keep an eye on your mutual fund returns and exit if required.
4) I am a new investor, excited about stock returns and mutual fund returns, want to enter the market now. I want to celebrate Mr.Modi’s success and expect that stock market reaches new high.
As a new investor, this is how one would think. But I doubt that whether one can enter the stock market now. You should wait and watch before making any fresh or lump sum investments now.
5) Are there any safe investment options now?
- Balanced mutual funds could be the best bet for you as equity exposure would be limited to 65%. The stock market crash may have a lesser impact compared to other funds.
- Ultra short term and liquid funds could provide stable and better returns in short term till the stock market stabilizes
- Our favorite bank FD’s could be an alternative option to park money till you make a fresh entry into stock markets.
Readers, what is your view about stock market investments now? Do you think that 30K Sensex is possible by end of 2014. Why do you think so?
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Should you stay invested or exit from stock market now