Market benchmarks ended Samvat 2079 with decent gains. What is your assessment of the market performance since last Diwali?
In the period post-Diwali, the markets faced a sluggish period for a few months followed by a noteworthy correction. In the past six months, a multitude of stocks have doubled in value.
Given this recent history, I wouldn’t be surprised if the market mirrors such behaviour once more. The resilience and rebound following Diwali hinted at a potentially recurring trend in the market.
Also Read: Diwali 2023: Nifty 50 may see healthy gains in Samvat 2080. Which sectors should you bet on?
What is your outlook for the market for Samvat 2080? What sectors could lead the next leg of a rally?
The outlook about markets is positive, but there will be volatility due to numerous events in India, such as state and General Elections. Globally, the United States is also dealing with debt and bond yield difficulties.
A few sectors that are likely to do well include – renewables, capital goods, defence, electricity, power-associated sectors, and infrastructure. Further, several small and mid-cap stocks are earning well and are available at reasonable prices.
Also Read: Diwali 2023: Can Nifty 50 hit 25,000, Sensex touch 75,000 in Samvat 2080? Here’s what experts say
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How can retail investors create wealth by investing? How should one invest when there is too much uncertainty?
For retail investors, investing in equity markets through mutual funds is the most simple and effective way of creating wealth. Ideally, the portfolio should consist of diversified equity funds with a proven track record.
To effectively manage equity market uncertainty and accompanying volatility, the Systematic Investment Plan (SIP) is the most effective way of investing in equity funds.
SIPs remove the emotions from investment decisions, which is the most challenging hurdle to wealth creation. Investors should continue with the SIPs till the financial goal is achieved, regardless of the market uncertainty.
How important is asset allocation? What could be an ideal portfolio for a regular retail investor with a long-term financial goal?
Simply put, asset allocation is the bedrock of a robust investment portfolio. It is the foundation on which the portfolio must be built. As such, asset allocation is critical to wealth creation. While equity carries maximum risk, it can create wealth.
Similarly, debt creates regular income besides providing stability. Gold is a hedge against inflation and becomes the go-to asset class in times of financial crisis.
The portfolio’s poor performance can often be traced to flawed asset allocation. Asset classes go through cycles. For example, gold has been the best performer in the last year. However, equity has been an outperformer in 3,5 and 10-year periods.
For a long-term financial goal, an investor can have a larger allocation to equity and remaining debt and gold.
A simple way to arrive at an asset allocation is by applying the thumb rule: 100 minus age should be allocated to equity. This can be a starting point. The asset allocation can be fine-tuned depending on the investor’s time to goal and risk appetite.
What are the key things one should consider before investing? How can investors manage risk in investing?
Before embarking on the investment journey, investors must know the rules of investing. Investors must invest while keeping in mind the financial goal. Once the goal is known, the tenure of investment can be decided.
Likewise, investors should invest according to their risk appetite. Asset allocation is the starting point for building a portfolio.
Once the portfolio is created, it should be adequately diversified. Taxation and transaction costs should also be a consideration while building the portfolio.
The portfolio should be tracked and reviewed regularly to ensure it is on track to achieving the financial goal. It is preferable to engage the services of a competent investment advisor to build and review the portfolio.
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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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Updated: 12 Nov 2023, 05:08 PM IST