Falling markets: An opportunity in crisis

Having breached the 29,000-points mark in the middle of April 2015, the benchmark Sensex at the Bombay Stock Exchange has now slipped over 2,000 points or 7 per cent in a matter of twelve trading days.

Having breached the 29,000-points mark in the middle of April 2015, the benchmark Sensex at the Bombay Stock Exchange has now slipped over 2,000 points or 7 per cent in a matter of twelve trading days. On Thursday, the Sensex fell below the 27,000 mark and closed at over three month low of 27,011. While it has been a cause of concern for equity investors, experts say that investors should take it as an opportunity to invest in the market.

Reasons for the fall

Corporate earnings: The earnings for the quarter ended March 2015 have been much below expectations. Not only brokerage houses have deferred their expectation of earnings growth by at least a couple of quarters, a lot of them have also revised their Sensex and Nifty expectations down. The good part is that markets have only deferred their expectations but the hope of rise in earnings is still strong.

FII tax concerns: Tax notices to several foreign portfolio investors last week for long-term capital gains tax dampened the investor confidence as it again raised concerns over unstable tax policy in India. Leaving aside the strong inflow of Rs 16,353 crore on April 21, on account of foreign institutional investors buying Daiichi Sankyo’s 8.9 per cent stake in Sun Pharmaceutical, FIIs have been net sellers on all 11 trading sessions and have sold equities amounting to a net of Rs 11,210 crore.

Concern over Greece: Investors worldwide are still concerned over the ability of Greece to remain a part of euro zone. There have been fresh concerns over Greece’s ability to repay as some countries are preparing for a default.

US growth worries: The US economy expanded by only 0.2 per cent in the first quarter ended March 2015. This came as a major concern to the markets that expected that a rising US economy might pull up the global growth.

What you should do

Do not exit in a hurry: Equity investors should not get bogged down with the ensuing fall in the markets and should, in no case, look to book losses and make an exit. The fall is a near-term phenomenon and one good news on the economic front may just lift the overall sentiment.

Look to accumulate: Those who have already benefitted from the growth in equity markets over the last one year should look to accumulate more as the market is almost 10 per cent down from the 30,000 mark it hit in early March. Others who missed out on the rally should get into the market either through lump sum investment in mutual funds or systematic investment plans.

Get in only for medium to long term: The markets, in the near term, will be driven by both domestic and global news flows and hence they may remain volatile. Do not invest the money needed in the next 6 to 12 months. Invest the money that can be blocked for at least three years.

Source:: Indian Express