It's an amazing time to be an Indian citizen. The whole world has gone through a gut-wrenching 2009 in the aftermath of the global financial crisis. In the midst of this messy scenario, India has emerged largely unscathed thanks mostly to its resilient consumers. Also responsible for this is the often clumsy, but mostly sensible, new government that took well-timed measures to stimulate India's economic engine during the year.
Halving of oil prices from their peak of $150/bbl and persistent global demand for the most competitive exports from India (IT and minerals) also helped. The economy has bounced back, with the latest growth estimates predicting an uptick for 2009-10 at 7.5 per cent. This has happened after India 'cracked' to under 6.7 per cent growth in 2008-9, following five years of close to 9 per cent compounded annual growth rate (CAGR). Pundits are now predicting a sustained 8 per cent plus score for the next three years, with reams of economic data and reasoning to buttress their arguments.
After more than a 100 per cent rise from the lows of March 2009, the obvious question for investors is: should we go aggressively long on Indian equities now?My asset allocation instincts tell me that there is never a yes or no answer to such questions. Once you are able to make this philosophical and conceptual breakthrough in your mind, you will breathe a lot easier on the issue of whether to invest in equities. It's always a good time to invest in the stock market. It's only the allocation that you must tweak. Right now, a short answer is that your equity allocation (if you are already invested and sitting on big and, perhaps, unexpected profits) should be slowly wound down a bit, notwithstanding the terrific rise and the uniformly good vibes that all economic and investing gurus are sending your way.
If you haven't invested as yet but are considering an entry in equity (and are feeling left out of the great bull party since March 2009), do invest, but with loads of caution. Choose defensive stuff (read, multi-year growth, enduring brands/franchise, industry-leading businesses and top-class management) and be prepared for a few shocks.
The stock market and the economy may not move in tandem
The big deal for anybody considering a move to equities right now is that their stance has to be defensive, rather than aggressive. There is a lot of promise on the growth front, but safety in the value area is a little more attractive right now. A retail investor will find it difficult to get the timing right. So invest by all means, but be prepared to stay invested for an extended period. Be careful to choose safety and quality instead of just a promise of growth from a less credible or less tested management. This will ensure that even if you were to lose a few points in the short term, you are more than likely to make up for these losses if you hang on to your investment for a reasonably long time.
Dipen Sheth is Vice-President, Institutional Equities, BRICS Securities