SIP It To Enjoy It

In view of the current developments, the pain of the recent global economic crisis may continue to be experienced over the next two or three quarters but will gradually subside. The US Federal Reserve too is inclined towards keeping the interest rates at lower levels for some more time and that should help the financial system. India as an economy has an exports exposure of roughly around 23 per cent. So the impact has been felt for at least the last six months. In terms of GDP exposure, some of the companies have had high exposure to global economy and foreign inflows. With resumption in foreign inflows in the past two months that part seems to have been fairly addressed this year.

However, the other component of our economy, which is pegged to the global economy, will be dependent on the recovery process in the US. We also have to observe the response of the economies of Europe and Asia-Pacific countries. This is because our export baskets will have a higher exposure to these two economies. Last year, China was our biggest trading partner and that reflects the growing importance of Asian economies. In between October to January when the credit crisis got accentuated, the government took a lot of measures very swiftly and adequately. However, the global downturn was so severe that most of these measures seem to have got absorbed and the impact of these measures has not translated into an uptake in the domestic macro-economic indicators.[PAGE BREAK]

Incrementally, we believe that government may not have much room left for doling out fiscal incentives or stimulus. However, if one sees the direction in which the Indian economy is moving, the government has a lot of room to liberalise foreign investment in many sectors, which I think could be a part of the new government’s initiative for the next one or two quarters. We believe that for the last 3 to 4 years the Indian stock markets and a larger part of the economy have got integrated.

The recent rally in the Indian equity market is in line with the rally in the global emerging markets. Interestingly, for the first time, the Indian equity markets have been at the forefront as an investment destination by the FIIs. It is understandable when a country is deemed to be a favourite by foreigners in a bull market but when the country is a top investment destination even while recovering from a bear market, it surely becomes a noteworthy fact. We see this as a positive sign from the equity point of view. India’s importance in the entire emerging markets’ segment has increased. A part of this importance can also be attributed to the new political mandate post-elections.

However, the main concern is that though the market has improved substantially ahead of fundamentals, if the catching up is less than anticipated it might pose a risk to the current rally. At such times, it is the investment philosophy that gains importance. At SBI Mutual Fund, for instance, the aim is to provide long-term, stable and consistent returns. As a fund house, we follow an active portfolio management strategy. For the last three and six months most of our funds have done well because as a fund house our portfolio had an element of high beta which we tried to moderate last year to some extent.[PAGE BREAK]

For the last year and a half, the markets have been very volatile. It is a difficult to time the movements of the market. Therefore, as an investor it’s a bit difficult to directly invest in the market because an individual investing on his or her own cannot build up a properly diversified portfolio. As such, my advice to such investors in this market scenario is to stick to a Systematic Investment Plan (SIP). It’s the best option available. Whenever markets are oversold or near the bottom, they should increase their investments. And instead of timing the market they should spread out their investments. That makes for a good combination of safety and profits.