Ask anyone if they time the market and they would reply in the negative. And if you come across someone by chance who says they have perfectly timed the market, they would be first looked at with disbelief and then would be seen as liars. No one in the market likes to associate oneself with timing, but whether one likes it or not it's all about timing and conviction.For instance, in November last year, India Infoline Wealth Management (IIFL) came out with its Asset Revival Fund. The alternate investment fund had a three-year lock-in with no entry load, fee and expense fund.
IIFL was so confident that investors would make money in the fund it assured them that if they don't earn a return of 12 per cent a year for three years then it would not charge them any management fee.
However, the caveat was if they made more than 12 per cent then IIFL would take 20 per cent return over the hurdle rate. This meant that if someone invested Rs 100 in the fund then IIFL was sure that in three years Rs 100 would become Rs 140. After three years if Rs 100 becomes Rs 150, then the fund would charge Rs 2 from the excess return of Rs 10 that the fund has generated.
As of June 2014, the fund has delivered 50 per cent return but still IIFL doesn't like to say it was due to good timing. They give credit to knowledge and research.
IIFL came out with a second fund named the National Development Agenda fund after the BJP-led government came to power. The conviction remains the same and the hurdle rate is also 12 per cent, i.e. 12 per cent return every year for three years, but this time IIFL is charging one per cent as management fee as it clearly knows that the low-hanging fruits have gone and though the market still looks positive, it will not give similar returns as it would have given in November last year.
Knowledge and research are truly important and are the backbone for investments but timing is crucial. Investors that entered the market at a high and beginning of 2008 in say Kotak 50 Fund, even today after six-an-a-half years have only seen their portfolio rising by 50 per cent.
Similarly, investors that came in May of 2011 and invested in funds like DSP Top 100 Fund or HDFC Equity Fund have seen returns between 40-50 per cent. Even a tax-free bond of 6.5 per cent could have given a similar return in the last six-and-a-half years.
Timing and conviction is critical for any investment and so one shouldn't ignore timing. Today, even at the Sensex level of around 26,500, the benchmark index is trading at a 12-month trailing price-to-earnings ratio of 18.
Valuation-wise, the Sensex looks a decent level. Timing-wise it could be still a good market to invest but with guarded optimism considering global and domestic factors.
Though geopolitical tensions seem to be easing, one should remain guarded as the local markets could correct sharply in the event of any negative news and because there isn't much of a trigger in the domestic market at current levels.
While this time the market is still not near euphoric levels, defence will be a good strategy to invest in the market. At the end of the day, timing is finding the right balance and you can afford to get a lot of other things wrong if you get your timing right.