askgopal

[askgopal]

Equity markets: Cheers & Fears

Indian equities have been on an uncharacteristic downward spiral since the last few months, a sharp nosedive taking place after a long time in our memory. Though the nature of the equity markets are that off a roller coaster ride with volatile swings, the current consistent downturn has unsettled even the seasoned investors. The consecutive fall of the stock indices have rattled investors across the spectrum. The natural tendency of the investors is to react in fear and panic, as was the case in the previous downturns.  

In general, there are several factors which impact the course of the equity markets, both in the short term and long term; and they can be either domestic or international factors. The factors work quickly and impact the markets suddenly during the short term as the news flow makes an impact almost immediately. In the short term, domestic factors like corporate earnings, short economic growth prospects and vital parameters governing the economy play a vital role in the equity market journey. International factors like geopolitical events can cause immense impact on Indian equities. 

At the outset, Indian economy on a standalone basis is doing pretty well on most of the parameters, including GDP growth. Inflation is largely under control giving hopes for further rate cuts. Though corporate earnings were mixed bag, nothing grave were reported in that sphere. But despite healthy macro economic environment, Indian equities have been battered over the last few months, baffling the investors.

Foreign Institutional Investors or the FIIs who have been the backbone for Indian equities for many years, have been on a sell off mode over the last few months, causing extreme distress in the equity markets. Though Indian equities are supported by domestic investors, both institutional and individual, the mismatch of buy and sell have caused immense pain in the markets. Chinese economic stimulus has renewed FII interest in the Chinese stock markets. Along with that, the tantrums of Trump on tariffs and trade war have shaken the equity markets across the World, in general.

In essence, the Indian equities are suffering this prolonged bearish trend largely contributed by the global factors and players. Domestic factors certainly do not warrant such a sharp fall, for sure.

Against this backdrop, it's impossible for the investors to exactly pinpoint the equity market journey in the coming months. Even the experts are grappling about the course of the stock markets in the next three to six months. Global factors are at play in disrupting the financial markets even as Trump jumps from one country to another on tariffs causing a sustained uncertainty which is building up in the global financial markets. FIIs in the Indian markets too hold key for the equity markets to stabilize from the current market turmoil. Given the trends, that looks highly unlikely.

What should the investors do in the current scenario?

The general investor psychology is to follow a "cheers or fears" approach towards equity investing; cheerful when the markets are buoyant and fearful when the markets crash. Investors should handle their extreme emotions in such a scenario when the fundamentals in the economy are good yet the stock markets are displaying extreme bearishness.

Investors should follow ABCD approach to handle market crashes and market uncertainties -

Asset Allocation - One has to do a proper asset allocation while making investments; and investing should never be seasonal or dependent on current market conditions. The underlying mistake most investors do is to over invest in equities when the markets are buoyant. Investors should assess their financial goals and objectives and set up a proper asset allocation across various assets. 

Back to basics - Investors in times of extreme distress market conditions should go back to the basics of stock investing. Well balanced and all weather stocks should be part of the portfolio at all points of time and that can be a good growth driver as well as a great cushion during market volatility. Excessive risky stocks can do well when the overall market conditions are favourable but may crash in severe market conditions like the present scenario. Fill the portfolio with quality stocks which can create wealth over a long term.

Calculated risk taking - Investment success is all about risk taking; particularly in stocks. But unmitigated risks can ruin one's investment for sure. Investors should take calculated risks while investing in stocks by avoiding concentrated portfolios containing few high risk stocks. During times of high volatility and sharp market corrections, high risk portfolios are prone to massive risks as seen in the current spell of market crash. One must invest in the stocks and sectors which is well understood.

Diversification - is key to successful stock market investing. Rather than focusing on a few stocks and sectors, diversifying across sectors and stocks will help investors overcome extreme volatility and make better returns. If investors find it difficult to diversify on their own, they could consider investing via mutual funds, which do the job of perfect diversification.

Equity investing is all about common sense and investors should tread cautiously during the times of distress as market crash can unsettle the hopes and beliefs of the investors. By following the simple check list, investors can certainly avoid being hit during the market crashes and still make handsome returns over the longer term.

Fears and Cheers should be handled with equal approach to be a successful investor

Happy Investing!

V Gopalakrishnan

Founder, Money Avenues

[askgopal]

Bitcoin's 'Trump'eter

2024 has been a roaring year for cryptos led by Bitcon, surging by eye whopping numbers in the run up to the US Presidential polls. The phenomenal run for the entire industry has driven by an one man army. Donald Trump. The prospects of a Trump led US government gave an adrenaline shot to Bitcoin throughout 2024. His open backing of cryptos led by Bitcoin has rejoiced the industry beyond limits.

His appointment of David Sacks as White House's Crypto and AI Czar has propelled Bitcoin to new highs, so much so that, Trump claimed the credit for pushing Bitcoin beyond $1,00,000 mark. To begin with, Elon Musk, a champion of cryptos, has shaped Trump's thinking towards Cryptos. Over the last few years, cryptos led by Bitcoin have been facing immense scrutiny from various nations. RBI Governor openly called for a blanket ban of cryptos in India, which he reasoned can potentially derail the financial systems without any kind of accountability. Also the fact that the cryptos have been a safe haven for subversive activities have been one more reason for seeking a complete ban. Government also took a grim view on cryptos by imposing a tax during the previous budget.

But the election of Trump seems to have reversed the trend and proved to be a turning point for the crypto market. Trump's open support to the crypto industry has the doors wide open for a fresh start for the beleaguered crypto industry.

That said, the risks arising out of crypto market functioning remains intact with many nations including India taking a cautionary approach on endorsing the cryptos. Investors need to remain extremely cautious on looking at cryptos as an investment option given the fact that many crypto exchanges have been victims of online hacking and the government has charged many exchanges of evading taxes from their businesses.

Crypto is a new animal whose behaviour seems suspicious and unpredictable. Trump's victory alone cannot push up an asset class without fundamental rules of the game in place. Cryptos need much more financially viable justification for the asset to be considered for investing. Till then it should be a big no for the investors who want to invest in cryptos!

V Gopalakrishnan

Founder & CEO

Money Avenues

[askgopal]

3D approach to investing 

Investing is neither rocket science nor an art, but a simple exercise driven by common sense. But we tend to make it more complicated due to various factors. Investing process can be rewarding of we stick to the basics of the games.

3D approach to investing 

Discipline: Discipline is the key to investment success. In general, investment process of the investors fail if they lack the discipline while investing, particularly in the areas like stock markets where discipline plays a key role in one's success.

Diligence: With a plethora of investment opportunities available in the market, investors should apply utmost caution while executing the choices. Diligent approach to fir in the right products in one's portfolio is extremely critical.

Diversification: Investors in general, tend to put all the eggs in one basket, which can potentially lead to greater risks in the portfolio. By diversifying across products based on one's financial goals and objectives go a long way in establishing a successful investment process.

Follow the 3D approach to investing and you can certainly expect a greater success in the process.

V Gopalakrishnan 

Founder & CEO

Money Avenues

[askgopal]

ABCD of investing

Investing is a simple.excercise; yet becomes complicated due to variety of factors, chiefly, too much of information makes investment decisions very difficult. Distractions of too many choices and temptations make the investment decisions all the more complex. 

Let's take the ABCD approach to investing 

Asset allocation - Allocating money into various asset classes based on goals and objectives will be the key to investment success.

Blending of products - By considering relevant products for investing, one can potentially make better returns from the investment process. Choosing the right blend of products is critical for investment success.

Concentrated themes - Though there is a plethora of investment opportunities, one should be focused on products which are relevant for their goals and portfolios. Deviating into too many products could be detrimental to the investment process.

Diversification - By deploying across various categories, one can minimize the risks involved as also for maximization of returns.

Happy Investing!

V Gopalakrishnan 

Founder & CEO 

Money Avenues

[askgopal]

FIGO - Your way to financial independence 

Financial management is an area where many find it extremely difficult to get a hold on. For many, it's a monster to handle in their lives. On the contrary, financial management is a simple exercise which works well with common sense. And it needs simple tools to work. 

FIGO way

Financially independent Goals and Objectives, in short FIGO is the best way to handle your finances.

Everyone pursues financial independence at every level and stage in their lives. With the modern lifestyles dominated by mounting debts in pursuit of good things in life, financial management goes for a toss.

It's extremely important for individuals to frame their financial goals and objectives to make an effective financial management.

First of all, individuals need to work on their realistic and workable financial goals to attain financial independence. Goals came range from buying a car or a house, getting married and settling down, children's future and education, retirement plans so on and so forth. 

Objectives are equally important to realise those financial goals. Every asset class for investing varies by various factors like the risk/return ratio & time horizon. By having well defined objectives, the attainment of financial goals become more attainable and achievable. 

To have a greater control on the financial management, one needs to follow FIGO principles.

Happy Investing!

V Gopalakrishnan

Founder & CEO

MONEY AVENUES 

[askgopal]

Global impact on Indian equity markets

The unfolding events over the last few weeks have been remarkably impacting the Indian equity markets. China's stimulus measures which were aimed to kickstart the sluggish economic growth in China, had a telling impact on the Indian markets, most notably FIIs or foreign investors made a beeline to Chinese stocks in search of better returns. Predictably, post stimulus measures, Chinese stock markets have rebounded, handing handsome returns to the investors at least in the short term. Whether this fairytale is sustainable or not is something which needs to be watched. But in the short term, Indian equities felt the pinch of FII exit & markets have turned sloppy over the last few weeks. Thankfully, the Indian domestic investor segment has grown tremendously over the last several years and they have been a major cushion to the stock market shocks caused by FII pull out. In my view, the exit of FIIs is normal and the Indian growth story remains as attractive as ever, unlike China which is battling a series of crises owing to its unsustainable growth model.

Donald Trump's resounding victory can also have a deeper impact on the Indian stock markets, most notably, India could witness a probable slowdown in FDI if Trump pushes for more measures aimed at retaining the investments within the US. For the US based companies, India has always been a top destination for their investments and with China's slowdown in the recent years, India emerged as a top player for the global FDI. That said, negative news on FDI could impact the stock markets in the short term, but in the longer run, India remains an attractive FDI destination. With nothing much known about Trump's trade priorities, the next few weeks could be crucial as the incoming administration may spell out its strategy on trade and industry.

On the whole, Indian stock markets will brace for more uncertainty in the coming weeks as the FII pull out may continue for a while. Nevertheless, Indian equities are poised for a multi year growth from now on as the long term opportunities look highly attractive for all kinds of investors, including the FIIs.

V Gopalakrishnan

CEO, Money Avenues

[askgopal]

Surging gold price, a message about global economy

Gold prices surging over the last six months to $2000/Oz conveys a clear message about the global economy. The surge in the prices coincided with the rise of interest rates to combat the spike in inflation during the period. Globally interest rates have been on a steady upward trend in order to tame the spiralling inflation.

Such a scenario augurs well for gold as the investors shift away from the riskier assets to gold which leads to a demand led price jump. Historically, turmoil in the global economy always favoured gold prices and this time too the theory holds perfectly well. Surging gold prices clearly map the course of the global economy and in the last six months, the economies across the World were busy batting high inflation.

Will the gold prices continue to surge?

The possibility of a further price surge entirely depends on the interest rate scenario. We can assume the briskness of interest rate hike to be behind us after a series of rate hikes by the global Central banks, led by the Federal Reserve which took the interest rates to the highest levels in recent years. Once the interest rates soften and stabilize, the investor sentiment too would favour riskier assets and that may lead to some price corrections in gold. But as such, it's hard to predict as we still foresee some interest rate hikes are still in front of us though the degree and pace may be slower than in the recent past.

That said, the gold prices may look firm with some minor blips in the immediate term, but the future course entirely depends on the interest rate actions by the global Central Banks. With the news flow emerging about a global recession, the news would be sweet for the gold prices though there are no definite and concrete signs of a recession.

If indeed the global economy heads into a recession the gold's upward journey will continue into the future as well. Right now, we are in the midst of a moderating interest rate scenario and a 'not so clear' about a recession. Based on this, gold prices can be back and forth on the price range till clarity emerges on the global economic framework.

V Gopalakrishnan

[askgopal]

What should the investors do in a high inflation high interest rate scenario?

Economies around the World are grappling with high inflation and high interest rate (HIHI) scenarios over the last year or so. India is no exception to this. RBI has been in a rate hike spree over the last several months hiking repo rates by as much as six times. Such a HIHI scenario throws up a challenge for the investors into various financial markets. Financial markets, mainly the stock markets will not like a HIHI scenario as the situation would not be conducive for the companies on the whole.

High interest rate scenario would mean the borrowing costs and servicing the existing loans for the companies to get more costlier thereby making a dent in the profits. Companies would typically put all the non core expansions on hold owing to high cost of borrowings. For the consumer oriented companies high interest rates would mean consumers will tend to postpone their non essential purchases which would mean a blow to their short term sales.

All these factors weigh in on the stock market and the performances of the stocks. Historically stock markets tend to remain volatile or underperform during such HIHI times. On the other hand, a high interest rate scenario augurs well for the fixed deposits; but of course fixed deposits are no match to beat the inflation.

What should the investors do in such a scenario?

Investors should brace for more volatility during this phase and should plan their investments in stocks for the longer horizon. Either through mutual funds or through direct, investors should take positions in well managed mutual funds or solid long term stocks. Needless to say, the short term could be more volatile in line with the HIHI scenario, but the long term could be rewarding for the patient investors. Based on one's financial needs investors can also take smaller exposure in fixed deposits, that too if the investors are on the higher age bracket. Young investors should confidently take higher exposure into equities during these times and wait for a longer time.

V Gopalakrishnan

[askgopal]

Equity markets through FY 22-23

Dear Investors

I am presenting you a summary of how stock markets performed in the financial year 2022-2023.

It's been a choppy, roller-coaster ride for the Indian equities in the last financial year which ended on 31st March 2023. Key benchmark indexes the Sensex and the Nifty ended almost at the same levels when compared with their beginning of the FY. There have been a host of factors which led to such a volatile market during FY 23. Primarily, stubborn inflation coupled with hardening of interest rates across the World led to poor investor sentiment in the stock markets. Such a high inflation high interest rate scenario does not augur well for the economic growth and that weighed heavily in the sentiments of the investors. 

Also, the rise in the interest rates dampened the spirit of the foreign institutional investors who preferred to pull out funds from the markets like India owing to high cost of capital in their countries, mainly in the US which witnessed a 0% to 5% jump in the real interest rates. As a matter of fact, the Federal Reserve has been hiking interest rates to unprecedented levels in a short span of time. Such high cost of funds discouraged the foreign investors to take fresh positions in markets like India. In fact, the FIIs pulled massive amounts of funds from the Indian stock markets during the period. 

Needless to say, markets like India are largely dependent on FII flows though the contributions from the DIIs have risen substantially in the recent years, but replacing FII funds altogether is a herculean task. Poor FII sentiment contributed largely to the drag down of the stock markets in India. Domestic factors such local inflation and correspondingly higher repo rate by the RBI to tame inflation played spoilsport in the economic activity leading to lacklustre performances of the stock markets in India. 

During the said period, even the retail flows into equities through mutual funds have been inconsistent. To make things worse, the financial results of the companies too have been mixed with several sectors reporting below normal numbers. Issues faced by Adani group stocks too compounded the volatility in the stock markets.Many of the new listings such as LIC turned timid during the period.

Looming of a global recession also contributed to the negative sentiments in the stock markets. Many of the IT companies have started cutting jobs to get ready for a tougher business environment in the near future. With all indications pointing to an impending global economic recession, the sentiment turned negative in the stock markets, both globally and domestically. The stock markets were caught by a huge surprise from the sudden banking crisis in the US and in Europe. The Russian Ukraine war played a critical role in dampening the spirits of the economy and the stock markets. In essence, multiple global and domestic factors played pivotal roles for the stock markets to remain subdued over the last FY. Rising inflation and rising interest rates, in particular, contributed towards the poor market sentiment in the country.

Overall, the FY witnessed volatile stock markets owing to poor investor sentiments contributed by various factors. And that possibly made this FY a forgettable one for many investors.

Happy Investing!

V Gopalakrishnan

askvgopal@gmail.com

[askgopal]

WiRe - Week in Review

It has not been a spectacular week for the stock markets, but going by the positive signals, there are definite signs of improvement in the investor sentiment in the stock markets. After a tumultuous phase for the beleaguered Adani stocks over the last few weeks, some of the group stocks made a smart recovery after the news of a large investor taking positions in some the stocks of Adani group.

On the whole, the equity markets have been moving in tight phases with few ups & downs given the overall domestic & global headwinds hurting the markets' growth. The economic challenges like stubborn inflation and upward rise of interest rates remain firm and they have been major drags for the stock markets over the past few months. The global challenge centering around the Russia Ukraine crisis remains firmly entrenched putting a huge question mark about the global growth in 2023. With the crisis seeing no end in the immediate future, the challenge remains fairly in place for the foreseeable future.

On the brighter side for the economy, the Indian service sector output expanded at the strongest rate in 12 years amid the joint-best improvement in new business intakes over the same period, according to S&P Global India Services Purchasing Managers' Index (PMI). The S&P Global India Services PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies. New orders placed with service providers rose further in February, with several firms suggesting that competitive pricing boosted sales. The latest upturn in sales was the nineteenth in consecutive months and the joint-strongest in 12 years.

On the whole, the week witnessed flip & bright sides in the economy with the expectation of sentiment improvement in the coming week as well. More positive news flow about the economy & corporate India could give a fillip to the stock markets, without doubt.

Happy Investing!

V Gopalakrishnan.

[askgopal]

2023 - The road ahead for economy & financial markets...

As we step into the new Calendar year, it would be worthwhile to analyze the probable scenario, both in the economy as well as in the financial markets, in general. Year 2022 witnessed challenges on multiple fronts, largely driven by global factors and particularly contributed by the Russian Ukrainian stand off. The Russian Ukrainian stand off pushed the global economy to the brink, which was otherwise limping back to normalcy post Covid crisis. Inflation skyrocketed in many economies and India was not any exception.

With the experts predicting the war to get over in weeks turning out to be a hoax, the war is lingering on even after 10 months with no end of it in sight. Unprecedented jump in inflation led to equally unprecedented rate hikes by the global Central Banks. India too witnessed a spate of repo rate hikes over the months putting the spokes in the economic growth wheels, albeit in the short term.

As a consequence, global equities too witnessed a rough ride over the last several months. Elevated interest rates capped the flow of easy money into the emerging markets such as India. Despite turmoil in the foreign flows front, Indian equities weathered the global storm in a fairly efficient manner, thanks to the unending flows from the domestic investors. Retail investors driven mutual funds industry handled robust flow of funds on a steady basis, largely into the equity funds. Robust domestic fund flows compensated the outflows of the foreign investors, who turned skeptical on the rising interest rate front.

Road ahead in 2023

As we close 2022 and prepare to step into 2023, the challenges seem to be multi fold. Fresh wave of Covid infections in China and in the other parts of Asia has left the global economy in a deep state of worry. As the countries prepared to co-exist with Covid infection, the fresh wave doesn't augur well for a casual approach on the virus. India should not be unduly worried as the country handled the past Covid surge in a commendable manner. But if the virus wave causes disruptions in the economic activity by way of lockdowns, that could spell doom to the recovery process of the economic growth.

With the steady interest rate hike already slowing down the economic growth momentum, a fresh Covid wave could complicate the economic recovery process in the most parts of the World. In India, Inflation seems to be moderating to comfortable levels and that could potentially slow down the pace of rate hikes by RBI in the coming weeks and months. That said, the slowdown of rate hike can no way reignite the economic recovery process automatically until the pace of the economic activities gather on the back of strong demand.

One needs to wait and watch on the covid wave front as also the prolonged stand off between Russia and Ukraine. Until we firmly get out of these two scenarios as quickly as possible, the global economic recovery can be in real jeopardy due to these twin challenges. Equity markets, in general, may remain volatile tracking the global challenges. The stock market sentiment always acts as precursor to the unfolding economic challenges. One really cannot predict the exact outcomes on Russia Ukraine stand off & covid wave; but the challenges for the global economy seems to be mounting in 2023. And its our best hope that these challenges fizzle as soon as possible for us to march towards vibrant economic growth recovery.

V Gopalakrishnan

[askgopal]

3i’s which led to the disastrous slide of Paytm stock

Touted as one of the largest IPOs in the history of Indian stock markets, the nose dive of Paytm's stock price since the listing has done poetic justice to many of the pundits who called the bluff of its entire business model against the backdrop of its steep valuation. The stock has created a dubious record of having eroded the maximum wealth since the IPO & listing in the recent years, on a global scale. 

And this is the company which was seen as a poster boy of the Indian new age digital business landscape. What exactly led to the free fall of the stock price of Paytm? There are many, indeed. But to begin with, the current slide is on the basis of an expectation that Reliance Jio could enter the segment which could potentially disrupt the fortunes of Paytm. But even otherwise, the company's fundamentals are weak with no prospects of any kind of improvement in the foreseeable future. 

3i’s which did sunk the Paytm's stock

Inflated valuation - The valuation was extremely pricey, to begin with. It was obvious that the promoter was providing a safe exit to many of the early stage investors with a huge return in multiples, which came at the expense of the retail investors. The valuation did not add up to the financials of the company, both in the present as well as the future. Paytm in its RHP clearly highlighted the risk of being a loss making company in the foreseeable future with no serious prospects of making even a little bit of profit. Perhaps the stock would not have slaughtered had it valued fairly & kept the IPO at a sane pricing. But the excessive valuation became a huge nemesis for the stock from the word go, since the time of its listing.

Illogical business model - There was no solid business model for the company, to start with. The company was in the digital space burning huge amounts of cash for its day to day operations. The question of profitability never arose all along. It was all about spending & spending more money to run the business and to acquire more clients for its digital business. The diversification into fintech never yields fruits in the short term. Overall, the business model has not been convincing to the stock analysts who picked too many loopholes in its business books. That led to a massive disaster in its stock price.

Irrational exuberance - Stock market cannot tolerate hype. Its as simple as that. Business is all about sound fundamentals, which includes profitability. Paytm never had sound fundamentals but rode on an irrational exuberance of making deeper inroads into a fast growing digital Indian landscape. That never works for a stock market. Stock investors want visibility of not only the revenues but also of the profitability. Buzz around its business can only make empty noises without any meaningful financials. The stock slide clearly showed the company's emptiness on its financial fundamentals.

Paytm's stock crash is a good lesson for the investors who invest on the basis of irrational exuberance. No stock or for that matter no company can prosper with perennial losses and with no visibility of profits without any meaningful assets. In this case, Paytm operates in the digital space with only the addition of the client base and that means nothing to the investors who expect better financial fundamentals. Investors instead of getting carried away by the hype, should focus on quality companies with sound fundamentals. None of them were there in Paytm.

V Gopalakrishnan

[askgopal]

Avoiding the behavioural traps in investing

The Behavioural pattern during the course of the investment journey is the key to the outcomes of one's investment strategy. If one thinks, investing is all about money & the markets, one may be in for a rude awakening. Among other factors, investor behaviour is the key reason (singular reason in many cases) for people's success or failure in investing, particularly in the stock market related investing.

In simple words, how one reacts or behaves in a given market scenario sums up one's success or failure. As we all know, the stock market is a function of daily fluctuations based on various news flows from across the country as well as the world. Even an unrelated event can cause turmoil in the stock markets.

And the movement of stock markets would trigger a variety of emotions ranging from optimism to panic, making things very complicated for the investors. Handling the behavioural patterns of the investors has been a study of many researchers, who have tried to dissect the behavioural patterns leading to the investment outcomes.

How to avoid the behavioural traps in investing?!

It all starts with ‘hope’ while getting into the stock markets and later on it manifests into various forms - euphoric, ecstasy, exuberance, disappointment, doubt, fear, disbelief, pain, agony, despair & panic before the cycle reverses to hope in the minds of the investors. Our mind varies in line with the current state of the stock markets. If we are in a bull market the mindset grows from hope to euphoric to exuberance to ecstasy. In case of bear markets, hope dwindles to disappointment to fear to disbelief to pain to agony to despair leading to panic in the minds of the investors.

Avoiding the behavioural traps is easier said than done as many still struggle to overcome the traps, however seasoned one is.

1. Understand the basic nuances of the stock markets before getting into investing - First and foremost, lack of understanding of the stock market dynamics is the chief reason for the behavioural traps. When the events take an unexpected turn, the emotions step into the functioning of the investors' mind. Investors, before getting into the stock markets should just be observers for a some time period to understand how the stock markets move on a day to day basis. Those observations can give definite insights into the functioning of the stock markets. One needs to understand that the stock markets can swing for some crazy reasons without any logic or reasoning. Getting to understand the stock markets is crucial to avoid the behavioural traps.

2. Need not get excited or disappointed, both ways - Having a balanced approach to stock market investing is key to avoiding the mental traps. One need not get excited if the markets go through a roaring upswing or get dejected if the markets crash all of a sudden. Ups and downs are part of the stock markets functioning. By staying balanced on both sides, one can effectively avoid the behavioural traps in the investment process. Only a balanced mind can think with clarity during times of crisis.

3. Assess your risk taking appetite - Understanding one's risk taking appetite is critical for investing in stock markets or in any product which are stock market oriented, like the equity mutual funds. Unless one is not aware or sure about the risk taking ability, it would be futile for the person to be in an investment which by nature is volatile. When the risk taking ability is more, the chances are that a person could withstand severe down swings with considerable ease.

4. Go with a plan - Having a clear plan is something which is important for any kind of investing, particularly the high risk investing like stock markets. Without a proper plan, the investor would be like a directionless ship in the rough seas. When a plan of action is put in place, various consequences also become part of the overall planning.

5. Be clear with your expectations - What to expect from the stock markets also define one's behaviour. If someone comes into the markets with a view to make quick money, then the person will go through enormous emotional challenges during the course. Being realistic in one's expectations will moderate the extreme emotional conditions and that will help the investors become successful in the investment process.

6. Avoid the herd mentality -

Behavioural patterns are largely impacted and defined by the herd mentality behaviour. There will be lots of things being said about the stock markets on a daily basis. One needs to keep away from the noise and the crowd to stay clear.

3Ps define the successful investment journey of an investor -

Patience - to go through the market cycles

Perseverance - to overcome the challenges

Passion - to achieve the goals with a singular focus.

Investing is rather a simple job, if only people avoid the traps. Because of the traps, many make investing a complicated exercise. Many of the successful investors have had a very clear mindset by ignoring the behavioural traps during the investment journey. They are the ones who have stayed in the stock markets during the extreme ups & painful downs over the years.

V Gopalakrishnan

[askgopal]

Follow twin SIP strategy to outsmart the volatility

Inflation is rising. So as the interest rates. And such a move will not augur well for the economy and the stock markets. Any rise in the interest rates will curtail and compress the economic growth prospects. Obviously, such a scenario will be an ideal case for stock market volatility. With no end to the war in sight, the global uncertainties will accelerate the domestic uncertainties too. In such a gloomy scenario what should the investors do with their investment strategy?

Follow the twin SIP strategy to outsmart the volatility

The 1st SIP is Stay. Invested. Patiently

Staying invested in stocks or mutual funds is the most appropriate reaction in such a volatile scenario. It would be too tempting to tinker with the investment portfolios, but the best thing is to stay put in whatever one has invested, unless some serious flaws are found in the portfolio.

It takes a lot of courage and conviction to stay undeterred in such trying times. But such a scenario is nothing new to the stock markets. Stock markets are designed to go through bouts of volatility based on various news flows. The current bearishness or volatility emerges from the global uncertainties stoked by sharp rise in the inflationary pressure. Staying invested is the 1st best SIP one needs to follow in such times.

Invest through Systematic Investment Plans -

Bouts of volatility in the stock markets cannot be avoided but can be handled with better tools. SIP is one such tool which allows the investors to invest through mutual fund schemes in phases, mostly on defined periodicity. By investing through SIPs, one can effectively manage the risks in the stock markets by buying whenever markets crash and ride out the volatile phase.

SIP is a time tested tool to take the volatility head on as far as equity investing goes. By automating your investments through SIP mode, one need not worry about the daily fluctuations or volatility in the stock markets, which are outcomes of various known and unknown factors. And we can hardly do anything about them other than being better equipped to handle volatility in our own way.

By focusing on the two SIPs, ie., Stay invested patiently and Systematic Investment Plan, one can be rest assured that the investing strategy will be successful over the long term however volatile the markets are in the present scenario.

V Gopalakrishnan

[askgopal]

Inflating the economic mess...

Retail inflation is surging unabated, despite the firefighting undertaken by RBI by way of Repo rate hikes over the last several months. The headline inflation numbers are looking increasingly worrying for the policy makers, not just in India, but across the globe. With the Russian - Ukraine war looking nowhere near to its end, the global uncertainties can only accelerate from here on. 

Global economy is in a double whammy, given the high inflationary pressure coupled with decelerating economic growth. We seem to be headed to a kind of stagflation scenario in most parts of the global economy. Most economic growth estimates of the global economies are far from being comfortable, with India being a lone exception of having a relatively higher projection compared to the comparable peers like China. And this peril comes at a time when the global economy is barely in a recovery mode post Covid induced economic slump. 

Stubborn inflationary pressure is forcing the global Central banks to go on a spree of rate hikes which would eventually hurt the economic growth numbers in the coming quarters. Sustained increase in the interest rates will have multiple impacts on the economic growth with credit growth slowdown being the direct consequence of sustained rate hike. 

With the higher interest rates, the ability of both the corporations & individuals' thirst for loans may come to a grinding halt. The appetite for loans has already started dwindling as the Repo rate is now at around 6% compared to 4% just a few months back. The direct fall out of the higher interest rate could be a slowing economy owing to slow down for loans for business expansions & personal consumption needs.

The rising inflation could also mean danger for the stock markets as the ability for the foreign investors to borrow cheap money will also get constrained to a large extent. Typically, foreign investors investing in Indian stock markets leverage the lower interest rates back home in their countries to generate higher returns aided by lower cost of funds. That kind of a scenario may see a curtain down & the fresh funds into Indian equities will remain a challenge in these circumstances. Even otherwise the stock markets will remain wary & volatile on a slower economic growth anticipation with the mood of the investors remaining gloomy in the present scenario. The sentiment of the investors, both the domestic & foreign, remain muted & cautious at present. 

With no clarity on the future inflationary numbers, the upward trend remains firm and doesn't appear to be moderating anytime soon. If at all the global economy is cared about, the World must quickly get their act together to bring the war between Russia & Ukraine to an end. The current phase of inflation in India is largely imported as the cost of goods are skyrocketing owing to the war between two important trade nations of the World. As India is dependent on the imports of many crucial items like Crude, the fallout of global inflationary pressure will be lethal on the Indian economy. We are already witnessing a sharp slide in the rupee against the greenback. 

The untamed inflation can potentially cause a major slowdown in the global economy by way of compressing the economic growth numbers very sharply. With RBI & the other global Central banks are doing their best to tame the inflation, it's left to the International powers to find a meaningful solution to the war in Ukraine, failing which the global economy in all probability will go into a recession, which no one knows how long it can take to come back to the usual growth trajectory. 

V Gopalakrishnan

[askgopal]

A note for the investors on Vijaya Dashami

Hello every one!

Financial markets, particularly, the stock markets are going through a volatile phase triggered by a series of events largely contributed by the International events. The prolonged war in Ukraine & the refusal to bring the war to an end is costing the global economies on a huge scale. Import dependent countries like India are feeling the heat as the imports are getting more & more costlier causing a strain in the Current Account.

War has definitely triggered a domino's effect on the global economies which are already constrained by a sustained & hardening inflationary outcome coupled with below average economic growth rates in many of the economies. The after effect of the spike in the inflationary environment has given rise to an undesirable interest rate hike cycle across the Globe. Global Central Banks including India's RBI has been pursuing a sustained hike in the interest rates to tame the spiraling inflation in the global economies. Sustained rate hike will alter the growth matrix across the global economies.

All these undesirable events happening right immediately after the Covid recovery phase has indeed shaken the global economies & have severely crippled and curtailed the complete recovery of the global economies which went through unprecedented economic turmoil during the Covid lockdowns. 

India's macro economic scenario also remains a cause for concern, at least in the short term, as the global shocks are impacting key economic indicators in a big way. 

Rupee is on a free fall breaching the new lows.

Inflation is on a steady spike.

Stock markets on a volatile journey.

Rate hike on a sustained basis.

Curtailed economic growth in the coming year.

Against this worrisome backdrop, 

Investors should focus on -

Getting their asset allocation models more robust.

Staying away from intense speculation in the riskier assets.

Buying into sharp dips in stock markets to construct a meaningful long term portfolio.

Re-adjusting portions of portfolios to handle the impact of rising interest rate.

Having a clear long term vision built on a viable financial planning model.

Given such a disturbing macro economic scenario, it is becoming increasingly difficult to predict the immediate future course owing to the intensity of the ongoing war in the Ukraine. I expect the uncertainties to continue at least for sometime now till more clarity emerges in the International circuit. Till then brace for more volatile stock markets in line with the International markets. India's long term economic outlook remains strong & outperforming over the other comparable economies. As always the stock markets would capture this unique advantage over the longer run!

Happy Investing!

Happy Dasara

Happy Vijaya Dashami to all...

V Gopalakrishnan

[askgopal]

Oil on boil. So as the equity markets...

Equity markets are on a roller coaster ride, as they have been in the past. Volatility & stock markets are inseparable twins and sooner the investors realise, better their outcomes will be. Host of reasons are keeping the markets on boil. Prolonged conflict in Ukraine, rising fuel prices & the consequent upward pressure on the inflation are some of the factors keeping the equity markets in check in the recent days.Equity markets are on a roller coaster ride, as they have been in the past. Volatility & stock markets are inseparable twins and sooner the investors realise, better their outcomes will be. Host of reasons are keeping the markets on boil. Prolonged conflict in Ukraine, rising fuel prices & the consequent upward pressure on the inflation are some of the factors keeping the equity markets in check in the recent days.

Whenever the oil is on boil, Indian consumers will always be at the receiving end and this time it's no different either. Though the RBI has maintained status quo on the key interest rates, sustained inflationary trend will keep up the pressure on RBI to raise the interest rates at some point in time in the near future.

What should the investors do at this point?

Investors should cherry pick nice stocks for the long term, keeping in mind, the overall growth prospects of the country's economy in the coming years. As long as the the geo political situation is fluid, the short term view remains volatile. Situation could improve as soon as the conflict sees light at the end of the tunnel. Till then buy good stocks for the long term. Buy more when they see correction in the interim. 

Happy investing!