Equity Investments are subject to market risk. You must have read this disclaimer thousand times cautioning investors about Equity Investments. We can handle RISK but when we anticipate DANGER, it is better to QUIT. Today was very beautiful day till 1 PM, but suddenly markets crashed by 300 Points. The CRASH came immediately after European Markets opened for trading. It was swift and sudden. The index/Nifty has broken its crucial support level of 7750. It was quite SHOCKING and ABNORMAL behavior from Market. Few days back, i cautioned my readers about the imminent threat but was praying that Markets will prove me wrong . You may check my post, Harsh Reality of Negative Mutual Fund Returns. Unfortunately, i was RIGHT. We are entering into a BEAR Market. After today’s crash, i foresee a much bigger fall. Therefore, just to share with my readers that i squared off all my positions of Equity Investments. Now i will wait for better times for Equity Investments. No one knows when the market will bottom out. According to experts, each and every CRASH is a BUY on DIP. Unfortunately from an investor’s perspective, it’s like fighting a losing battle. Let’s check some of the reasons that are top of my mind or behind my decision to QUIT Equity Investments.
Equity Investments – Time to Exit
I am listing down signals that in my opinion point to bigger trouble ahead
(a) Abnormal Behavior: Though i am a patient investor, consistent abnormal behaviors lead to a more significant fall. A crash of 300 points in a matter of few mins indicates that some big fishes have exited the market. Off late this trend is consistent, and the market is spooking very frequently. From my past learning experience, Equity Investments are in danger when the market shows abnormal behavior too often.
(b) The Exit of FII’s: From last two months there were only handful days when i saw net inflows from FII’s. Indian Equity Investments cannot survive without FII inflow. DII’s can only make the fall more gradual but cannot stabilize or take stock market to new levels. During the 1st week of November, there was heavy selling from FII’s. Trust me FII’s know much more than the retail investors. FII exit signals more bad times ahead. It is one of the primary reason to quit Equity Investments. Though i am thinking quite WILD, One of the reasons that i think of is next year’s US presidential elections. After two successive terms, there is a strong possibility of the return of Republicans in the White House. Traditionally, Republicans are not for outsourcing that will impact Emerging Markets like India. I am just thinking aloud :). Ground work begins much before any significant event.
(c) Rise and Crash: In my opinion, it is a trap for retail investors. You will never observe linear fall of the stock market. A market may be stable, or there will be a notional rise for a couple of days and then crash. It is all operator driven to avoid panic selling in the market. It is surprising that despite a more than 10% fall, there is no dearth of +ve News flow. It is done to keep sentiments positive among retail investors to avoid panic selling. When retail investors realize this trap, it will be too late by then.
(d) The So-called “Experts”: Nothing personal against anyone, but you should never listen to so called experts for Equity Investments. All the FREE advice available in the market is not reliable, fair or transparent. A small fish don’t know what is happening in the sea. The fact of the matter is that markets are very choppy and turbulent.
(e) International Factors: Recent terrorist attacks in Paris was the last nail in the coffin of Equity Investments. Besides terrorism, The Japanese economy has again slipped into recession. Chinese Economy is also not doing well. Fed Rate Hike in December is one more sword that is hanging on the neck of Stock Market. Lack of positive triggers is not a good sign for Equity Investments.
(f) Domestic Factors: Loss of Bihar Elections was just an excuse that the market was waiting. The fate of GST bill and other key reforms are the cause of worry among investors. Though the govt is doing much more than what it can do to improve market sentiments. Unfortunately, the negative factors outweigh the good work of government. As i mentioned, stock market needs positive triggers on the domestic front to rally. I was quite shocked to see the tepid response of the stock market to opening up of FDI in key sectors. These are not good signals for Equity Investments. In short, at this moment market is discounting all the +ve triggers.
What to do next?
Next big question is what to do next after liquidating Equity Investments. The funds need to be deployed somewhere. Obviously investors would like to park funds from Equity Investments to safe and secure option. The first choice of traditional investors is Bank Fixed Deposits. Personally i am not convinced with Bank Fixed Deposits due to taxability and current lower rate of interest. Another option is long term debt funds or Liquid funds. The long term debt funds have disappointed this year. Unfortunately, the 10- year Bond Yield of Govt Bonds has not responded well to 100 basis Repo Rate cut by RBI. The 3 month return of long term debt funds is negative. The fear of crash in bond market due to FII exit makes liquid funds vulnerable. After a lot of research, i zeroed on Arbitrage Funds which are safe and secure. You can be assured of 7% to 8% tax free returns after 1 year. Moreover, they perform well during volatile markets. I will diversify proceeds from my Equity Investments to 5-6 good Arbitrage Funds.
Will i again invest in Stock Market?
The Answer is big YES. Good times don’t last forever so as bad times. I am a strong believer in Equity Investments for long term wealth creation. As i mentioned in my other posts that entry and exit point determines your fortune in the stock market. I will wait for stock markets to stabilize. I will also wait for positive triggers to flow in both on the international and domestic front. I will keep sharing my views on Equity Investments through my blog, but this post is for information purpose. I believe in maintaining transparent and open communication with readers of my blog.
The views expressed in this post are my personal views, and i do not offer any investment advice. All investors are advised to consult their investment advisor and/or conduct their independent research into an individual stocks before making any decision. I am not responsible for any loss or implications arising out of any decision taken by the readers after reading my post.
Copyright © Nitin Bhatia. All Rights Reserved.
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