Equity buying in 2016 is not for the faint hearted

The market situation was always likely to be a problem in the first couple of months in this year, but it has positively turned dismal right now. The situation in China may actually not be bad for our markets in the medium term, but in the short term it has caused widespread panic worldwide and we are also affected by it badly. Our own corporate results last quarter will be fairly poor and if you add to it the low key expectations of the budget, there is very little to look forward till March.

For the entire year however, the picture does not look so gloomy. Most analysts have felt that Nifty will end around 9000 in 2016 end and I think they are likely to be correct. Despite the current gloom and doom surrounding us, the fact remains that we will be probably the highest growth economy in 2016. On an relative scale we are not doing badly but our issue is more to do with inadequate growth compared to both our need as also our potential. If some of this can be addressed through budget, government spending and corporate growth, we may still do well.

So how do you go about buying equity this year and why do I say that it will not be for the fainthearted? Well, for one things can get a lot worse before they get better. I still think Nifty will have decent support at 7500 but, if that gets breached decisively, a come down to 7000 odd levels cannot be ruled out. If this does happen then the large caps are likely to take a longer time to recover and the 9000 levels many experts are advocating will likely never happen. The Mid caps and Small Caps, which have done relatively much better in 2015, are quite likely to suffer a rapid meltdown in such a scenario too. In these circumstances, buying equity will be accompanied by strong volatility in all [probability. So, if you are the kind of person who really gets worried about a 10 % drop in your portfolio, 2016 is likely to be a year that will test you in s strong manner.

Suggested strategies for MF buying can be as follows in 2016:-

  • This is one market where SIP makes sense, at least for the first 3-4 months of the year. That may change later on when markets are expected to turn around in the latter part of the year.
  • My method of buying MF will still be a better one in this market. For large cap funds look at Nifty levels around 7500, but make sure you have money to buy if at all it falls further.
  • For mid cap and small cap funds you can wait for another 6-8 % drop in the respective indices. There will be adequate buying opportunities in the year, no need to rush it.
  • US based funds will be good to have in the portfolio, track DJIA and NASDAQ to make your purchases. Again, no real rush but as the current levels look good make a start now.

As far as your stock buying goes, you can look at these:-

  • While you can buy a good stock any time, the current situation is best for buying stocks. At long last valuations seem to be reasonable.
  • Decide on 5-7 sectors that are likely to do well in this decade and the next. Focus on the consumer story as with a burgeoning youth population these sectors will do well.
  • Look at fundamentals to decide on which companies to buy into and after that, review the DMA movement of these stock prices to decide at which level should you start buying these stocks.
  • Build a portfolio for the long term, no need to panic if a good company takes a 10 % beating after you buy it.
  • Diversify wisely but do not spread your portfolio too thin. So, look at about 15 stocks and be sure that no stock is more than 10 % of your portfolio value.
  • Always buy in small lots and with price triggers.

Assuming that you are buying equity for the long term, 2016 could be a great year to buy equity. However, if you are deeply affected by your portfolio being in the red, then it may not be a great idea to do so. From a personal angle, I do not think I will need to redeem my equity portfolio in the next 10 years, if at all. This being the case, I plan to add to certain stocks in my portfolio and also add to my MF investments.

I suggest most of you also do the same, with only one absolutely necessary caveat. Have a reasonable debt portfolio which can take care of your goals coming up in the next few years. The last thing you want is a high value equity portfolio with negative returns and you being in a situation where you are forced to redeem part of it to meet your financial goals.

And no MDBSC* is not a good strategy in the 2016 markets, there are far better ways of handling equity buying this year.


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