The massive crash in stock indices BSE Sensex and NSE Nifty 50 post the unexpected Lok Sabha election results where the Bharatiya Janata Party (BJP) fell short of a majority did not trigger panic among retail investors, mutual fund distributors said.
Instead, they wanted to know if this was the right time to increase their allocation to equities, they said.
“Our retail clients wanted to know if they should buy on today’s fall in the markets. Calls from investors who were worried about markets tanking further were negligible,” said Amol Joshi, Founder, Plan Rupee Investment Services.
Having a long-term investment strategy in place appears to have played a role in keeping the nerves in check. “Most of my clients are long-term investors. Those who were sitting on cash, had the time horizon and risk appetite saw this as a buying opportunity. Nobody panicked or pulled out their holdings,” said Rushabh Desai, Founder, Rupee with Rushabh Investment Services.
Deepak Chhabria, Chief Executive Officer and Director, Axiom Financial Services echoed the view. “There has been no reaction at all from our clients. Over last few months, we had been cautious and had done some profit booking. Though there were a few calls enquiring about re-entry into the markets (at these levels), we are in a wait and watch mode as of now.”
Keep an eye on the future, not short-term volatility
Financial advisors are recommending that investors adopt a long-term approach, ignoring volatility in the interim. “Many did have questions around government formation, but it is a once-in-five-year event and if you look at history, we have had stable formations once the governments took charge. This was the case with UPA-I, UPA-II as also the two terms of the Narendra Modi-led government. Our view is that no matter what the election outcome may be, once a new government takes charge, it will be business as usual,” said Joshi.
His view is that investors should keep an eye firmly on the future, but look to deploy a part of their cash holdings into equities to capitalise on the buying opportunities that the market meltdown has provided. “In the last six months, our advice has been that if you have a lump-sum to invest, you should participate in equities in a staggered manner through the systematic transfer plan (STP) mode. Post results, if you have bulk funds, that is, in bank fixed deposits or liquid mutual funds, you can invest 25 percent of that amount at one go now. Do note that you should be willing to stay invested for at least three to five years,” added Joshi.
Wise to lean towards large-caps
Financial advisors believe retail investors are better off banking on large-cap and diversified mutual funds. “Clearly, two-thirds of the sectors are trading at premiums. Mid- and small-caps are expensive, but large-caps are reasonably priced. They are trading close to their historical averages. Our advice is that you should be look at mutual funds that are inclined towards large-cap stocks – pure large-cap, flexi-cap or focussed equity funds,” said Desai.
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