Are you planning invest in the equity markets now?

24 OCT, 2010, 07.09AM IST, VIKAS AGARWAL,ET BUREAU
Are you planning invest in the equity markets now?


The domestic stock markets have had a dream run this year. Good returns have increased the enthusiasm and risk appetite of investors. Strong inflows from foreign institutional investors (FIIs) remain the key factor behind the bullish sentiments in the market. Investments from domestic institutions and individual investors have also increased. 

The recent over-subscription of the Coal India IPO is a classic example of positive investor sentiments in the markets. The market undertone is quite bullish at the moment and this is reflected in the strong bounce-back after every minor correction. Analysts believe the markets are consolidating at the current levels before taking to newer highs in the short to medium terms. 

The important factors to track are the movements of FII funds and sentiments in the global markets. The markets may have a deeper correction triggered by negative sentiments in the global markets. In general, individual investors should stick to the strategy of 'buy on dips'. Investors should identify favourably-placed sectors in the current economic conditions and invest in selected fundamentallygood stocks. 

These are some of the important points investors should keep in mind while investing in the markets: 

Strategies for primary market investments 

The primary market is attractive with many IPOs listing with attractive gains. However, individual investors should invest only their risk capital in IPOs. It is not recommended to borrow money and invest in IPOs for the sake of listing gains. 

The introduction of ASBA (application supported by block amount) makes investments in IPOs more attractive as the money does not get debited from the investors' account at the time of application. It just gets blocked. The money is debited from the investor's account only at the time of allotment and meanwhile the investor keeps earning interest on this blocked amount. Also, it avoids the hassles of tracking refunds. However, the ASBA scheme is applicable only if the investor applies to an IPO through the bank's e-filing route. 

Strategies for secondary market investments 

The stock markets are close to their all-time high and consolidating over the last couple of weeks. There is strong buying support at the lower price levels and some profit booking at the higher levels. A deeper correction cannot be ruled out as the markets have moved in a single direction over the last couple of months. 

Some analysts believe the markets may go through many small corrections rather than a significant deep correction. Therefore, it is advisable to stay invested in the markets and play safe by booking profits at regular intervals. A periodic review of the portfolio based on the current macroeconomic and business conditions, and quarterly results is needed. Investors should take necessary steps and make the required adjustments in their portfolios based on the macroeconomic conditions and company results. 

Investors looking at investing fresh money in equity should first identify the stocks and invest in small lots to average out the entry price. Since it is not possible to time the markets, it is advisable to stagger investments by buying in smaller lots at regular intervals. Small investors should invest in large-cap stocks and selected mid-cap stocks that have good liquidity. It is advisable for investors to invest only their risk capital in equity, and track the market movements and developments related to stocks of their interest regularly. Equity mutual funds are a good alternative for investors who do not have enough knowledge about the markets.




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