Mr. Nitin Jain, Edelweiss Financial Services
Retail investors have largely taken a cautious approach ever since the 2007-08 global financial crisis, notwithstanding the recovery of FY10 and FY11.
Their behaviour reminds you of the famous adage “once bitten, twice shy”. Even last year, when the Indian stock market was pretty buoyant and FIIs pumped in lot of money (US $24 bn), retail investors used the rebound to cuttheir equity exposure by redeeming MFs.
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| Nitin Jain, Edelweiss Financial Services |
Retail investors continue to shun equities this year with the NSE Nifty more or less flat. Equity MFs have seen outflows worth about Rs. 6,000 crore year-to-date (YTD).
Given the challenging macro-economic backdrop, what strategy should retail investors adopt? We believe that retail investors, who have been patiently waiting for some decent returns from equities for the past 5 years, should not lose heart. With expectations of subdued returns from Gold and Real Estate, this is the right time to look at equities for long-term growth of one’s investment portfolio.
Under-ownership among retail investors, coupled with expectations of a gradual economic recovery and undemanding valuations (12.0x FY15 earnings)make equities fairly attractive investment option.
Our view on the Indian markets is positive over the next couple of years, as India’s economic growth will start to look up slowly but surelyon the back of better agriculture sector growth and increased government spending in the run up to general elections.
Barring food prices, inflation has been brought under control and is not expected to rise anytime soon. Fiscal consolidation remains well on track. In fact, FY13 fiscal deficit came in at 4.9% of GDP as opposed to Budget Estimate of 5.2 %. The Finance Minister has expressed confidence in meeting the FY14 fiscal deficit target of 4.8% of GDP.
Good south west monsoon is likely to boost agriculture output while the large Current Account Deficit (CAD) is also expected to moderate in FY 14 on lower gold imports. The upcoming Lok Sabha polls will lead to some pick-up in fixed investments as tends to happen in a pre-election year.
The Indian stock market’s valuation remains supportive at 12.0x FY15 earnings, which is below long term average of 15.0x to 16.0x one-year forward earnings. Retail investors can thus expect good returns from Indian equities over the next two years and recommend increasing allocation towards the same.
Retail investors can take exposure to equities via Mutual Funds. A variety of equity MF schemes are available in the market. One can opt for Systematic Investment Plans (SIP) in one or more MF schemes - Large - Cap funds, Large - Capcum Mid-Cap funds and Balanced funds. If one is not shy of a direct equity exposure then one can buy Large-Caps and quality Mid-Caps.
Stagger your investmentsrather than putting a lump sum and stick to a disciplined approach by regularly reviewing your strategy.
The author is Mr. Nitin Jain, Head of Retail Capital Markets, Edelweiss Financial Services
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