The market jargon may recommend you start investing when the rate of ‘buying’ dips and that of ‘selling’ spikes. However, if you aren’t a market expert, you will find it a tad difficult to comprehend what the ‘highs’ and the ‘lows’ really mean, and how far down the axis they can go. It is impertinent to thus know this relative nature of the market before you jump in.
Is it a good time for investing and buying stocks?
Let’s trace back our steps to when the nationwide lockdown was announced. Following this, Sensex and Nifty faced the likes of their worst day in history. Economists continue to warn of the worst recession recorded in history and recommend that only those with above-average risk appetite should look at large-cap stocks and those with no such fervour for risks should not venture aggressively into the markets.
Srishti Gosavi, a chartered accountant spoke to Bingedaily, pointing out that investing stocks has always been a risky affair, but this has been aggravated. “In light of the present-day scenario, we are already hitting a low due to the pandemic. Some stocks are doing well, while others are available at a cheap buy. We call this a buyer's market. If an investor is looking from a long-term investment of 1-3 years, the market is surely going to surge from its present position. Investing in good stocks is the key to earn handsome returns.”
First-time investors should avoid mid-cap and small-cap stocks
Experts on market analytics recommend that first-time investors avoid mid-cap and small-cap stocks, and advise instead they focus on large or mega caps. “Start investing in Nifty companies and then try to venture into lower rung market cap companies,” says Rusmik Oza, executive vice president and head of fundamental research, Kotak Securities. He goes on to dissect this jargon, saying that if Nifty-50 is trading at peak valuations, the risk-reward ratio may not be favourable for medium-term investments.
“For first-time investors who don't understand fundamentals and valuations, and also don't have the time to research or study companies, it is best to invest through mutual funds.”
Having enough liquidity in times of crisis like these is impertinent for first-time investors and Srishti Gosavi says there are two factors to be kept in mind. “It is important to self-analyse if you have a stable source of income and if you have health insurance in place. If yes, your investment should be diversified into various different asset classes which will reduce the risk-equity, bonds and gold depending on the risk capacity of each individual.”
A Systematic Investment Plan (SIP) to invest in mutual funds through a good advisor can be a good option for first-time investors and experts assure that a patient investor with a 2-3 year time horizon is bound to generate handsome returns if they take a risk and invest in these times of uncertainty.
Investing in areas that are likely to see growth
Mumbai-based investment adviser Sandip Sabharwal sees a predictable revival of economic growth in sectors such as agriculture, automobiles, FMCGs and pharmaceuticals. Prime Minister Modi has given impetus to economic revival by way of launching the ‘Vocal for Local’ campaign. “This special economic stimulus worth 20 lakh crores, which will benefit the cottage industry, micro, small and medium enterprises (MSMEs), labourers, the middle class, and industries,” says Srishti.
In addition to this, she says a provision of Rs 20,000 crore has been made for stressed MSMEs. “Fund of Funds (FoF) with an amount of Rs 10,000 crore will provide equity funding support for MSMEs. DISCOMs are to utilise Rs 90,000 crore to pay their dues to transmission and generation companies. Construction agencies are provided with an extension of six months. These packages ensure a revival in MSMEs, Real Estate, technology-driven systems, local manufacturing, the local market and the overall local supply chain.”
The road to economic recovery
While the economy is currently in a slump down, investors are shifting from banks and non-banking financial companies to other sectors. This in the hope that investments will be impacted to a lower extent at these places. “As we are in the middle of a health crisis, accumulation will be the best strategy for long-term wealth creation through direct equity and mutual fund investments,” Vinod Nair, head of research, Geojit Financial Services, told NDTV. “Given the weak economic outlook, especially in the coming quarters, only stable and attractive valuation stocks and the sector will do well.”
However, in the midst of the uncertainty, is a glimmer of hope. The Covid19 vaccine is in the pipeline and Srishti points out how this can have a significant impact on settling the scores on investment. “Considering the distribution process will take a minimum of 6 months to a year, it is likely that India will start showing economic recovery within a period of 6 months. Factories, industries and construction work has already started operating in most places. However, consumer sentiment is not at its best, and this will improve with the onset of the vaccination process.”
Feel free to contact Srishti Gosavi at firstname.lastname@example.org for any queries you may have regarding investments and finance, for her expert advice.