Sensex, Nifty ride to lifetime highs, check investment strategy; know how to create long-term wealth

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Investors who can afford to research and select stocks should start SIP directly in certain longer term mid and small cap stocks.

Even as the Indian stock market hits record highs, a few events may hurt short-term sentiments on D-St, said Devarsh Vakil, Deputy Director of Retail Research, HDFC Securities. In an interview with Surbhi Jain from Financial Express OnlineDevarsh Vakil advised investors, who are looking to generate long-term wealth, to stick with a systematic investment plan (SIP), because the power of capitalization begins to work when investors stay invested for the long term. For retail investors, Vakil suggested sticking to asset allocation plans. Here are the edited excerpts.

1. What do you think of the current Sensex, Nifty rally? What are your short-term market expectations?

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We are cautious in the short-term markets from a tactical point of view. Fears of default in China’s real estate debt as well as the announcement of tapering by the US FOMC make us wary in the markets. These events can hurt short-term feelings in Dalal Street.

2. How do you explain the current trend in gold / silver prices?

The dollar has strengthened in recent times following the news of good US economic data such as retail sales and lower jobless claims. Bullion prices are expected to remain weak as the greenback strengthens in the near term.

3. Who is your Sensex and Nifty target for the short and long term?

We do not expect any longer term aggregate index levels. We follow a bottom-up approach – where we analyze individual businesses and forecast their finances over the next 2 years. We assess the prospects of individual companies and determine their suitability for investing over a period of a few quarters to a few years. We analyze the index only from a trading perspective and eliminate momentum trading opportunities for our clients who wish to trade derivatives.

4. What should be the investment strategy of retail investors today?

Many retail investors who have recently started investing in stocks on their own have not experienced market volatility. The markets do not go up in a straight line and they should be aware of the possibilities for a market correction. It is advisable to create dry powder which can be put to good use due to corrections in the equity markets. Retail investors should stick to their asset allocation plans. If the share of equities has swelled more than the plan called for, they should move some of the capital to fixed income assets.

5. Should investors look to selected mid and small caps for the next five years?

Systematic investment plans are ideal for building long-term wealth. The power of compounding begins to work in your favor when you pick the right instrument and stay invested for the long term. Investors who can afford to research and select stocks should start SIP directly in certain longer term mid and small cap stocks. If you are new to investing, it is advisable to select a few standard funds and do longer term SIPs. Only invest the amount that is not necessary for the next few years.

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