It is foolish to run away from a depressed market

Equity is a risky option in the short term. However, it can beat all other investments in the long term, say experts
Madhu T TNN
The stock market has suddenly become a lonely place for many. Until recently, they were part of a big group, cheering the onward march of market indices and predicting one milestone after the other every financial quarter. Suddenly, they find themselves alone, submerged by bad news. The cheerleaders have all vanished. Their places have been occupied by doomsday predictors. They are now chanting sensex-at-12,000 mantra. Their thesis is based on the latest inflation data, which showed that inflation has breached 7% mark for the first time in three years. They are certain that the government would be forced to sacrifice growth for price stability, something that the finance minister has hinted recently. So, another round of policy rates hike by the Reserve Bank of India is around the corner, anytime now. That means interest rates would go up once again, denting corporate b o t t o m l i n e s and profit. So, brace yourself for depressing times in the stock market. Is it so? The answer is mostly yes, irrespective of who you talk to in the stock market. However, if you are lucky enough to catch hold of a seasoned investor in the market, somebody who has seen many ups and downs, the answer won’t depress you that much. “Yes, all these bad news are lurking in the market. Also, there are global economic woes and a possible recession in the US market, which could spoil the party,’’ says a prominent broker in the stock market, who doesn’t want to be quoted. “But individual investors should remember that when you have had such dream run in the market for the last four years, it is inevitable that the market may get into long correction phase. They should remember it is their chance to enhance their personal wealth.’’ “I find this question of what should one do after every fall in the market or confronted with bad news amusing. You don’t change your investment plans according to the market mood. Fortunately, most clients have started understanding about it,’’ says a certified financial planner. “I always tell them you have invested in the stock market for retirement, which is 15 good years away. Why do one worry about the money just because market is going through a bad phase for a few months or a year?’’ he asks. Here is what they would want you do. First, stick to your plan. Whether you have putting some money on a regular basis on stocks or you are following a proper plan, try to stick to it during good and bad times in the market. The only rule is that you don’t need the money at least for the next five years. If you don’t have time on side, always stay clear of stocks. Equity is an extremely risky investment option in the short term. However, it can beat all other investments in the long term. It is not an assertion, but many studies have proved that it is the best bet when it comes to meeting long term goals like retirement. So, get ahead with that systematic investment plan. Don’t even think about abandoning it. Second thing to remember is that it is foolish to run away from the market during a bear phase. For example, all of us know about the bull phase in the last four years or so. But do you remember there was bear phase preceding it? Well, those who have stayed invested or invested during that period got the maximum returns when the bulls returned to the market. So, it is always important to remember that a depressed market is a haven for bargain hunters. Remember, bulls were justifying valuations when the market was at 19,000. Now, with the sensex merely above 15,000, the same stocks are available at extremely attractive valuations. Why not pick them up and wait for the bulls to return? They definitely would, after the whole world agree that the market is again going to rock. Finally, always have an eye on fundamentals. For example, nobody is talking about a run away inflation or a sharp dip in economic growth. Everybody is discussing only about short term set backs. So, be in the market to see a better tomorrow.