Over the last few weeks, the two leading stock market indices — BSE sensex and NSE nifty — have been hitting new life-highs almost on a regular basis. Rising from about 22,000 in early March, the sensex hit a life- high near 25,400 mark on May 16 and, after some profit- taking in the days following that, is again on a northward journey. Along with the rally, market volatility has also increased. This is making a lot of investors jittery and confusing them about wheth- er to buy, or to sit quiet and expect the market to come down a bit and then buy.
For investors who are not well-experienced to ride through volatile markets, this is a tough call. In this article, we will look at two aspects: Is the market really at an all-time high from a valuation perspective? And even if there is room for retail investors to buy even at current valua- tions, how should they go about the same?
In terms of relative valua- tions, for example earnings per share (EPS) and price-to- earnings (P/E) ratio, the markets are not near their all-time high levels yet. “In 2007-08, markets were at 21,000 and the sensex EPS was at around Rs 800. Today, it is well above Rs 1,300,” says Ashish Modani, founder, SLA Investments, an inde- pendent financial adviser based in Jaipur
Modani adds, “So from a valuation perspective, sensex in 2007 was high but today sensex is trading at a P/E of 18 which is reasonable. Also, we are in the upswing of an economic cycle and overall things can only improve from hereon. Better earnings by corporate India could lead the indices to even higher levels from here, so the mar- kets are not at their all-time highs in reality.”
Where to invest? And how?
This is the next question. Jayant Manglik, president (retail distribution), Religare Securities, says, “For those who are risk-averse, SIP (sys-tematic investment plan) is the best route. They should go for an SIP in a Nifty fund. It’s not about the level, but the right way to invest.” Ac- cording to Manglik, those who can take some amount of risk can invest — directly or through the mutual fund route — in infrastructure and banking sectors.
Top broking house execu- tives say that in the infra- structure sector, both the physical (power, roads, rail- ways, airports, ports, etc) and social infrastructure sectors (hospitals, education, etc) are turning out to be big bets now. Among banks, the large ones have a better chance to gain more compared to the smaller ones, they add.
Whether you are the risk- Illustration: Mahesh Benkar averse type or the risk-taker, as an investor you should also keep a close watch on your portfolio. “The new govern- ment’s policies will take about 9-12 months to be im- plemented and so one should review the portfolio only af- ter 12 months,” Manglik says.
Another aspect that in- vestors often forget while investing is that there should always be a goal for invest- ing. Says Modani, “If, for instance, you want to invest for a goal which you want to accomplish in the near fu- ture, then it is best to go for fixed income instruments such as debt funds or FDs. But if the goal is 10-15 years away, equities are the best bet. Align your investments to your financial goals and make the most out of it.”
It is also important for inves- tors to be patient with their investments. “Time and again, it has been seen that retail investors do not make money from capital markets because we overes- timate the money we can make in a year and underes- timate what we can make in 10 years,” says Modani.
He further adds, “It has been proven on so many counts that equities are far better than any other instru- ment, but still we fail to make money out of it. What we forget is no matter how great a thing is, some things just take time.”