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Is Staying With Cash The Best Option For Equity Investors?
Recently, the benchmark indices fell for nine straight days, but, have recovered since. Escalating border tensions and uncertainty about the election outcome, continues to weigh on the mind of investors. Nobody wants to take needless risks and each one wants to protect his capital.
Is staying with cash an option?
For small investors, the best option would be a buy on dips strategy. In fact, one can invest gradually as the markets keep falling. Let's give an example. Let's say you plan to invest Rs 5 lakhs. We believe the index at 36,000 points is certainly expensive. So, investors can invest Rs 1 lakhs, when the index falls below 35,000, another Rs 2 lakhs, if the index falls below Rs 34,000, so on and so forth.
Set a target for yourself and investor accordingly. Investing the entire amount of Rs 5 lakhs, when the index is at 36,000 points, could be a risky proposition. Until then, you could keep your money in banks like Yes Bank, which offer you a savings bank interest rate of 6 per cent.
Shares to buy when markets fall?
There are many stocks that you could buy, as the markets fall. If a stable government at the centre gets elected, be rest assured that stocks from the infra space would make a strong comeback. Stocks like Sadhbhav Engineering and J Kumar Infrastructure projects have been badly hammered down.
In fact, the latter is trading at a p/e of less then 10 times. However, if there is an unstable government at the centre, we might see some reaction in stocks. Outcome of the General Elections are extremely hard to predict. It therefore makes sense to buy on dips, though if the market has a runaway rally there could be a feeling of missing out.
Border tensions to keep markets worried
As we write, tensions across the border continue to rise. Skirmishes at the border may continue to push the markets lower, as Foreign Portfolio Investors tend to get worried with such developments.
India dropped 1,000 KG of bombs on early Tuesday morning. According to reports India carried out pre-dawn strike on a terror camp across the Line of Control. It is likely that tensions could rise, which could lead to aggressive selling by Foreign Portfolio Investors. In fact, over the last two days we have seen massive buying by FPIs and that inflow tide could well change.
Markets maybe increasingly volatile
Going ahead, we may see increased volatility, ahead of the General Elections and also with border tensions. It is best to set targets and buy accordingly as mentioned above. Once again we wish to reiterate that it is not a good idea to buy a lumpsum, so keep staggering and investing as the markets fall.
