OTHER RELATED STORIES

Money In Commodities

What's Your Real Worth?

There's bad news and good news. first the bad news: you, the retail investor, are at a disadvantage, since investing is not your specialisation. Now the good news: you, the retail investor, are at an advantage, since investing is not your specialisation. If you're into something entirely different, chances are your mind gets infiltrated by day-to-day thoughts a bit more eclectic-if not eccentric-than those occupying Dalal Street's number-crunchers. What might your 'market diary' for 2004 look like?

January 14; 5:30 PM: Wow, wow, wow. Sensex close 6,194. Let's rock the town!

January 22; 4:30 PM: Ouch! What the...? Isn't the world ruled by equity (and okay, debt) anymore?

February 13; 5.30 PM: Phew, back above 6,000. Okay, so the world is ruled by thoughts of equity (and, yeah, debt).

March 4, 10:30 AM: Real investors talk about the 'yield curve' not the 'image', they say. Hah!

March 13, 4:30 PM: Awe-right-we won the match! What? 'Flight to safety'-are these guys serious?

March 24, 5.30 PM: Aaargh! Down again... now is this one of Daniel Boorstin's "hoaxes we play on ourselves" or what?

March 30, 3:30 PM: There's got to be a better way around this. There'd better be. Where is the rip-cord?

Reality Dose

Figures, of course, speak with more clarity than diaries. Unless you go to the extent of holding this page upside down, you cannot escape the slope of the Sensex curve. Take a good look (bottom right corner). It's clear: the stockmarket as represented by the Sensex has been in correction mode-and it's a long correction too-for the entire year, this leap year 2004. The index has lost almost a thousand points (around 15 per cent) from its all-time peak of 6,250. And if the only thing leaping right now is your pulse rate-specially if you got into the game only in the upper 5,000s (late, that is)-you need to stop right there. Calm yourself down. And read this.

What should you do?

First of all, taking the quickest exit from the stock market is not a recommended response. According to Namit Nayegandhi of JM Morgan Stanley Retail Services, equities are still worth your investment attention. Resisting anything resembling a stock may not be terribly wise, echoes Deven Choksey, Managing Director, KRC Research, arguing that the overall story of India's economic progress, when placed in a wide frame of analysis, remains compelling.

Moreover, as Jamshed Desai, Head of Research, IL&Fs Investsmart India, sees it, valuations of several stocks have descended to more sensible levels; it's a matter of making good picks. "As most are scared now," he says, "this is good time to buy selectively and hold (at least for a year)."

Finally, there's consolation in the fact that the recent market slide still leaves the market a few thousand points higher than its depressed level of April 2003. Besides, the index is declining only within the charted parallels of a downward 'channel', as the chart below shows. It is not crashing outright. That's a relief, particularly given the experience Indian investors have had after so many scam-tainted bull runs in the past.

That said, it's your money, and you're the master of its destiny. So do not ignore the distress signals. Technical analysts point out that trading volumes have fallen sharply, an indication of market weakness-and a sign of a continued correction ahead. "The market is still in a range-bound status with downward bias," is how C.K. Narayan, Technical Analyst at ICICI Securities, puts it.

What happens next? No technical chart projection can really tell for sure. But still, given all the data inputs and potential likelihoods, some informed guess-ball-gazing can be done. "Though there may be a small rally in April," predicts Narayan, "this could be thwarted, and the market would be back to these levels once again. The final bottom (for the present correction) is expected only in May."

Brand New Game

Putting together a workable strategy in a sliding market calls for a degree of sacrifice. So if you haven't quit the habit of chasing quick gains, do it now. And don't worry about the withdrawal symptoms-for, it is the "bane" of retail investors, to use Nayegandhi's word of reproach. "Instead," he advises, "look at equities as a serious asset class wherein long-term money could be made."

The other sacrifice needed is of your expectations. Scale them down. And down again-till they start looking realistic. The market, says a succinct Desai, is "not going to rally the way it had done last year".

As simple as that.

Your basic investment outlook revised, you need to scan the investment horizon, as visible from the current vantage point. Expect volatility over the next few weeks. April is the month of the annual data deluge, with financial results, CEO voices, guidances, forecasts and everything else hitting the market with full force. Pay attention, even if you can't exactly monitor it all, and even if it's a major task separating the good from the noise. And then in May will come two bits of crucial information: on the new government (for policy direction), and on the monsoon forecast (for sustainability of 2003-04's brisk pace of growth).

The next major event for the markets after this, most likely, would be the presentation of the year's actual budget in June by a newly-sworn-in government. "We never had so many big events bundled up in the same quarter!" exclaims Nilesh Shah, Senior Vice President and Head, Portfolio Management, who expects the market to oscillate in the 5,200-5,800 range through this period.

The scanning done, it's time to get down to the actual business of investing your money. One way forward is not to bother about any of the events, and assume that prices will go up once the uncertainties end. This sounds straightforward, but is actually a high-risk high-return strategy-a bet on multiple optimistic outcomes. "Higher the risk (read uncertainty), higher the chance of return," says Desai, reiterating the truism that buying into a picture of certainty can never offer the same rewards. "The price of certainty is very high," he explains, "and therefore the return will be lower."

Given the volatility, it would also pay to stagger your investments. Beware of trying to time the market. "Trying to catch the bottom or the peak is near futile," explains Nayegandhi. "Investors should put in 25 per cent of their investible corpus now, and should invest the remaining 75 per cent with further dips in the market," advises Nischal Maheswari, Head of Private Clients at Edelweiss Capital.

Meanwhile, the big question is: what sort of stocks to go for? Play safe, very safe. Stick with industry leaders and other good bets that are trading at decent valuations. "There are several leaders (like State Bank) now with low P/E multiples," says Sunil Shah, Managing Director, HDFC Securities. You could go sector-wise as well. According to Maheswari, hot sectors include pharma (the export story), oil (with restrictions expected to be eased after elections), and auto (in domestic boom). To this list, Choksey adds tourism, which is also looking up. Beyond that, picking stocks by the criterion of dividend yield may also be a good idea. "As the dividend season starts from April," notes Choksey, "this is the right time to get into such stocks."

Safety In Diversity

It goes without saying that there's plenty of company-specific homework to be done on the stocks you pick. So if an equity strategy still looks too dicey for your comfort, you might want to diversify your holdings to the extent possible.

Mutual funds, of course, are an anytime option. Some of them, thankfully, are particularly safe. You may want to look at funds that are quoting much below their net asset values (NAVs), and make a bet on the two converging.

Convergence or not, if the very thought of equity makes you giddy, however, you need other safe alternatives. But wait-don't even think of stuffing your bank with fixed deposits. The interest rates being offered (below 5 per cent) are an insult to anyone who can spell inflation. Instead, perhaps the most attractive non-equity investment option at the moment is RBI Relief Bonds. These offer 8 per cent (taxable) and 6.5 per cent (tax-free) by way of interest. Unlike small saving instruments (such as PPF and NSC), these impose no investment limit either, so you can pile in. Big investors are rushing for these, and it's worthy getting them while they're still available.

Yet another way to diversify your investments is to think of commodities as relatively safe bets. Plenty is happening here, but you need to acquaint yourself well with the ins and outs of this game. The good news is that you may not find it so tough-simply because you're not a specialised equity or debt investor, and you know that the world is ruled by a lot of other thoughts.