Podcast 15th January 2016
Hi I am Arjun Parthasarathy speaking and this podcast is on “Why this equity market correction is good for you?”
The equity market correction is not negative for you unless you are leveraged or have invested without knowledge and analysis. In fact the market correction is good for you as you can take a step back, look at valuations and take investment decisions at the pace at which you desire.
More often than not, in rising markets, investment decisions are hurried as you do not want to lose out on market gains. As you hurry on your equity decisions, you tend to leave out good due diligence and that leaves you vulnerable to improper decision making when markets correct. You may end up averaging stocks that would only go down further or you may end up selling at wrong prices or valuations.
What should you do in this market correction? First take a long, hard look at your portfolio with a very critical eye. Ask yourself why you invested in each stock or mutual fund scheme in the portfolio. Once you have answered your questions, check what has changed for the securities in your portfolio. Have business fundamentals changed? Is the weak economy and markets hurting the company? Were valuations too expensive in the first place when you bought the stock.
If you have invested in a mutual fund scheme, check the portfolio and see if you can relate to the portfolio. Check if the fund has stuck to its objectives and is doing exactly what it said it would do when you invested in the fund. Check if there is deviation from the fund’s investment philosophy.
The correction is also a good time to look at stocks you have avoided earlier as valuations may have come down. You could also look to average out stocks that you are comfortable holding. If you are running a too large portfolio, you can prune it down and if you are running a highly concentrated portfolio you can expand it if it suits your investment style.
It is difficult to say whether it is a correction at all or a long bear phase for the market. To answer this question you will need to carry out a macro analysis on global markets and economies, domestic business and economic conditions and also correlate equity to currency, bonds and commodities fundamentals.
The Sensex and Nifty have fallen by around 4% since the beginning of 2016 and by around 9% over the last one year. The fall has been sharp since the peaks seen in March 2015, with fall of over 17%. Global equity indices too are in correction mode with indices from S&P 500 to the German Dax falling by around 7% in the beginning of 2016 and by 10% to 19% from peaks seen in 2015. Equity markets are clearly in a correction mode that can last for longer period of time than expected.
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