SIPs or STPs: The markets can stay volatile for quite sometime on the back of weakness in global markets. Hence, it is advisable to stagger your investments over the next 3-6 months.

Balancing your portfolio can be the secret to be successful in this dicey market. Once you invest in a well diversified portfolio, you need to rebalance it periodically. With time, some asset classes in the portfolio will outperform others, leading to a change in the initial portfolio mix.  Such deviations should be quickly detected and corrected by way of rebalancing. This will help in wealth preservation and risk minimization.

Increased global risk aversion has led to a shift in focus from Growth to Value. One should focus on stocks with large and stable cash flows and a consistent stream of earnings such as those in the FMCG and State Utilities sectors. Intermittent relief rallies should be used to get out of these stocks. Domestic consumption is likely to remain strong in India on the back of growing middle class, rising per capita incomes and favorable demographics.

The much expected slowdown in global growth, it makes sense to stay with sectors that are likely to benefit from strong domestic demand, e.g. FMCG, Retail, Telecom, Media & Entertainment, etc. Years of easing monetary policy and a falling US Dollar have resulted in money moving into commodities, resulting in inflating prices and forming a potential bubble which is likely to result in a sharp decline in commodity prices. Hence, investors would do well to steer clear of commodity-based stocks.

With interest rates in India not expected to come down anytime soon due to rising inflation, increased volatility might be seen in rate-sensitive sectors such as Banks, Consumer Durables, Real Estate, etc. Investors should avoid such sectors for the time being, till the outlook is clear.
In wake of the prevailing uncertainty as regards to interest rates, one should remain neutral on Debt (both long-term and short-term). If at all necessary, invest in GILTs and Treasury bills, instead of corporate bonds, as bond spreads are expected to widen in the wake of increased risk aversion. Fixed Maturity Plans {FMPs), investing in Commercial Papers (CPs) and Certificates of Deposit (CDs), with a view to holding them till maturity, seem to be attractive option.

A certain portion of one’s portfolio should always be kept in cash. Presently liquid funds are giving 7-day annualized returns of approx. 7-8%. This is definitely better than parking your funds in bank accounts. Of late, the Real Estate markets have been bearing the brunt of tight liquidity and a fall in demand due to unaffordable real estate prices. Real Estate developers are finding it difficult to complete projects due to paucity of funds. The present situation in the equity market is a complete turnaround from the euphoria seen almost 2-3 months back. No one is willing to invest, though the valuations are significantly cheaper than those that they bought at, around 2-3 months back. Let’s wait and watch when this bear phase is going to end.