Not many retail investors have gained from the sustained rise in stock prices over the past 18 months. Most of them did not participate in this rally and the uncertainty in their minds continues even now. Should I invest now? Should I wait for a correction? What will happen if FIIs withdraw? Small investors are still grappling with these questions.
Before we examine the right course of action for investors, let us look at the factors which have led to so much foreign money flowing into the Indian markets. These are:
- The Indian economy is built on strong fundamentals and growth projections are healthy.
- The financial services sector in the country, the epicentre of economic growth, is very robust and wellregulated.
- There's a large domestic population driving India's consumption story.
- Increased earning levels have put more money in the hands of investors and consumers.
- There is an opportunity to build and improve upon basics like literacy, education, healthcare facilities and infrastructure.
- The Indian demographics are extraordinarily positive, with 50 per cent of the population in the earning bracket.
- The domestic savings rate is healthy and robust at over 30 per cent.
- There is political stability, with a majority government at the helm.
- The Indian stock markets are wellregulated and have a very secular distribution among sectors.
There has been no change in any of these factors in the past 12 months. If anything, the situation has improved, with inflation being tamed and companies reporting good profits. So, why would foreign money flow out and miss this terrific growth opportunity that the Indian market offers?
The small investor should desist trying to time the market as it is a futile exercise. Instead, he should keep investing at regular intervals. Of course, he needs to ensure that the money he invests in stocks is not required in the near term.
It's also important for investors to keep an eye on their asset allocation. If you have been in the market for more than 6-8 months, your asset allocation would have changed due to large gains in equities and it could be time to rebalance. Book partial profits and reinvest the proceeds in debt funds.
While it is difficult to predict the future of the markets accurately, the positive factors mentioned above indicate that the rise in the indices should not be any cause for concern. The Indian market is not overvalued as of now, so don't sell in a hurry. It won't be surprising if Diwali witnesses more sparkle this year.
WAQAR NAQVI CEO, Taurus Mutual Fund
