November 19, 2019
“A market is the combined behavior of thousands of people responding to information, misinformation, and whim.” – Kenneth Chang
Every day we are flooded with various noises or news through newspapers, TV channels and various social media. Some news uplifts your mood and some bring wrinkles on your forehead. After the news appears, world of experts whether qualified or not, experienced or not, start preaching impact of specific news on your well being – financial, social or otherwise.
News relates to past. They tell you what happened. Most of the news are noises. They can’t tell you what will happen. We can only draw inferences of what may happen in future after separating noises from news and analyzing them.
Different from the news is announcements. Like meteorological department announcing onset of storm in the area or a company announcing new product line or government announcing its policies etc. They also form part of news. A company may report twice the profits of last year than its previous year. This is news. But will the company be able to repeat the performance for the next year. Nobody can say. The company also reports a new product line and its strategy to enter and capture the market. This is an announcement of future actions. You may reasonably assume that with new products the company should be able to increase its sales and profits.
We should learn differentiating between noise like news and policy announcement kind of news and analyse them to understand the impact the news will have on our life – financial or otherwise.
Recently Moody upgraded India’s sovereign rating after 14 years, GDP numbers were much better than last quarter, manufacturing data has improved – are the news on a positive side. Another nuclear missile test by North Korea, increasing interest rates scenario in USA and other developed economies, dwindling support for BJP in Gujarat back-home etc. are news which most economist and market pundits do not regard good for the market.
But amidst such news was a statement by PM Mr. Modi that no matter what (election results), I will continue to work like this. Here the PM clearly states that the future government policies and/or action that his government will be pursuing will be similar to the decisions he had taken in past. This statement should get top priority for your investment decisions. If you think that whatever policies were implemented in the past has benefitted or will benefit the economy of the country. And thus will have positive impact on your investment. You should increase your exposure in equities. And if you think that his past policies or actions had disrupted growth of the economy and have a question mark about his fiscal or financial prudence then you should liquidate your equity holdings and move your funds to safer assets.
One must learn to differentiate between noises and the real news and then between news and announcements. In nutshell, some news might impact your returns on specific investments in the short run. But if you have invested for the long run, then you need not worry as long as you feel the economy will keep doing well.
Equity:Better GDP numbers, improving manufacturing data; increase in capital expenditure; higher sales of commercial vehicles; reasonably better corporate results than expectations; subsidizing impact of GST etc. are the news that signals towards economy recovering from disruptions. But mismatch in present market valuations still caution about taking fresh exposure into equities. Corporate earnings are yet to catch up and justify the current market levels. We advise calibrated approach while taking fresh exposure into equities. Go steady on your investments. It’s better to use STP or SIP or such balanced funds that have mandate to use the options and the futures to maintain their equity levels.
Debt:Central banks of many developed countries have been increasing their benchmark interest rates. This has lead to outflow of lot of foreign money from Indian debt markets. While manufacturing data improved, agriculture output had been under pressure and the same is reflected in increasing inflation. With banks flush with liquidity and inflation becoming a concern, at InvestmentMitra we don’t expect RBI to stay neutral on interest rates. An investor would be better off staying away from duration based dynamic bond investments and rather focus on accrual funds.
Gold:With economy in good sight, we see gold to remain range bound except for some cyclical demands. Gold appreciates during the period when there is uncertainty in the economy and investors look for safe heavens.
Real Estate: Government has made a lot of efforts to improve the performance of this sector like introduction of RERA, ease of getting licenses, interest rate subsidy etc. We have seen pick up in leasing space for commercial properties though in concentrated pockets. Many financial institutions have also started investing in completed or under construction projects through Alternative Investment Funds & REITs. But abundance in supply and job security concerns among the prospective buyers will take some more time for this industry to come back on track. And the returns will never be same like we saw in last decade.
We at InvestmentMitra advise you to align your asset allocation and portfolio in line with your risk tolerance and returns expectation. Please consult your financial planner for the same. You may also contact us. Please write to firstname.lastname@example.org simply reply to this message.