The Sensex & Nifty touched record levels of 39,000, in accordance with our target of 40,000. In our monthly letter in August, we had mentioned that risks were evenly balanced at 40,000 levels and we will keep your portfolios to ride out volatility and grow in the next few years.
The Sensex has since then corrected and markets are facing a period of consolidation until the general elections in 2019. As mentioned earlier, the positives are strong corporate earnings, good global growth and a growing domestic economy. On the negative side, current NBFC issues, political risk, geo political risks and global trade war issues are coming to the fore.
What will you do in a period of market consolidation? It is an ideal time to focus on stocks that you already own, as they are well positioned to ride out volatility and grow down the line. At the same time, the market will give many opportunities, as good stocks with strong fundamentals could see fall in valuations as business grows but prices do not rise with business growth. We will be focusing on identifying such stocks for your strong core portfolios.
Incremental investments need not be hurried in a market that is consolidating. In a consolidation phase, there could be changes to sector preferences, move towards perceived safety and tendency for sharp moves up and down. Discipline and patience will carry good portfolios well in such markets.
If you are invested in mutual funds, you should look at the expenses of the fund and if they are high, you should look to shift to inexpensive funds, preferably Index ETF’s that carry the lowest expense ratios.
Fixed income investments are best in cheapest funds as returns are already low. Liquid and gilt funds are the cheapest in terms of expenses.