Is it the right time to Invest in shares?
Indian equity market has been a different success story since the beginning of this year. It has been setting up the record high almost every second trading session and breaking it the very next session. At the beginning of the year 2017, Nifty was trading at around 8,200 and currently it is trading at 10,100 which means it has given a return of around since 23.5% since the beginning of the year.
Now, the biggest question that comes to every individual’s mind is how to invest when the market is at its all time high?
Before answering this question let us first try to understand few important points:
What’s driving the market rally?
In simple terms, the answer is an inflow of funds whether through domestic investors or by foreign investors. Since the beginning of the year, the mutual fund investment has been around USD 7,308 million which has already surpassed the previous year’s number of USD 6,976 million in just 7 months. Similarly, the FII and FDI inflows have also seen a remarkable increase.
What should drive the market?
In our opinion, the most important factor behind the market rally should be the earnings. But this is not the case; the last quarter’s result season was more or less a disappointment. The bad results of the corporate can be mainly attributed to the demonetization which severely affected the revenues of most of the companies. Even in this quarter, the results have not been able to impress most of the analysts. Still, the market is at its all time high. This raises a very serious question:
Will the Bulls be able to sustain this rally?
In our opinion, the main factor that would decide the future of the Indian equity market would be the corporate earnings which have not been able to impress yet. The other factor to consider is that the excess liquidity in the market after demonetization is now reducing. As a result, the market is bound to correct in the near future. So this brings us to the final question:
What should be your strategy?
For almost all of the retail investors, the market seems to be highly attractive and most of you must be considering entering the market, but in our opinion, this is the riskiest time for retail investors especially the new investors. Thus, right now you should avoid directly investing in the stock market.
Then what should you do with your savings?
Now, most of you are thinking that what should you do with the surplus money that you have when the interest rate on the savings as well as fixed deposits are falling and the stock market seems too risky to invest. The answer to this would be investing in mutual funds through systematic investment plans (SIP) reason being this mode follows the concept of rupee cost averaging in which your actual investment gets averaged because of the regular investment that you are making. Thus, it eliminates the risk of market timing and you get better risk adjusted returns.