Axis Securities advise investors to focus on equities for long-term goals and invest in debt for short-term goals. Stock market is on a wobbly road. Unlike the constant upward move seen post Covid-19 crash in March 2020, the year 2022 hasn’t been kind to investors. Nifty is down 4 per cent so far this calendar year as on Thursday. It is down 9 per cent from its all-time high hit on October 19, 2021. Meanwhile, equity mutual funds have started registering outflows. The numbers of fresh demat account openings have also gone down. This is just the opposite of what investors should do in the existing scenario, says Rajesh Palviya, Technical Research Head at Axis Securities. It is time to invest.
Why most first-time investors make losses in the stock market is because they don’t set the right expectations. They invest but with a mindset of a trader. There is a stark difference between trading and investing. Traders make the most of market momentum. They need to focus on ongoing events impacting the markets. They have a short-term approach. However, investing is about the long-term. The correct time to invest in the market is when it is on a downtrend. The highs and lows will keep coming. In fact, highs and lows are the reasons why investors make profits in the market. So, befriend volatility.
“Nifty has given a CAGR return of ~11% in 27 years and an absolute return of 1700%,” says Axis Securities’ Palviya. There are nine stocks in the stock market that have been part of Nifty50 index since inception –HDFC Bank, Infosys, RIL, HDFC, Sun Pharma, HCL Tech, ICICI Bank, Cipla, ITC, Hindustan Lever, SBI, TCS, M&M, Hero Moto and L&T. Interestingly, stocks such as HDFC and HDFC Bank, ITC and RIL have given an absolute return of 11339.71%, 53457.69%, 10335.76% and 26137.95%, respectively, data from Axis Securities shows. The CAGR comes out at 19.73%, 26.96%, 19.31% and 23.56%, respectively.This is the power of the stock market.
Equity versus other asset classes
Palviya has done a study across asset classes. Rs 10,000 invested in 1979 in Fixed deposit, gold and real estate turned 3,81,625, 5,01,450 and 5,96,000, respectivelyas on June 31, 2022. By comparison, Rs 10,000 invested in 30 stocks of Sensex would have given you 40,00,000 during the same period. “8.10% is the average inflation rate.Real return is the maximum in equitymarkets. It is the only asset that beatsinflation almost every year.” says Axis Securities’ expert.
Though equities did give you best returns, one should still be diversified across asset classes. Focus on equities for your long-term goals and invest in debt for short-term goals. There should be some element of gold and real estate as well in your portfolio.
This is because at a time when equities are on a downtrend, the other asset classes support your portfolio.
Stock market has seen a tough time in the recent months due to Rising raw material prices, Geopolitical tensions, Inflation, Global interest rate cycle and Rising crude oil prices, etc. However, the trend has started to change. Nifty has risen nearly 7% in last one month. “There are tailwinds such as Increasing exports, Earning Uptick , GST collections, Make in India / PLI schemes and Increase in consumer spending,” says Rajesh Palviya. He highlights key sectors to invest:
Automobiles – Raw Materials coming down, Semiconductor shortage issue reduced
Banking – Margin expansion when interest rates are high due to high CASA
Capital Goods – Order book at an all-time high, Raw material cost coming down
FMCG – Domestic growth intact, Raw material and packaging material cost coming down
Make sure that you go for debt-free companies with higher RoE and RoCE when you pick stocks for the long-term. Also make sure that you are well-diversified across market capitalisation. Besides, do not shy away from buying highly-valued stocks, the ones that have recorded attractive returns in recent times. “The goal is to make more onyour winners than you lose onyour losers and do itrepeatedly. It’s not aboutbuying low and selling high, it’sabout buying lower than yousell. It’s about makingmoney!” says Palviya.
Avoid timing the market. Time in the market is more important than timing the market. Make the most of market volatility.