Is it a good time to invest in the equity markets now?

Well when a fund manager says it is time to be cautious it means we are late already! Yes the markets are high and the PE is very high.

THIS DOES NOT MEAN THAT THE MARKETS HAVE TO FAIL OR AT LEAST FALL. It just means that the market is at a high PE but there is NOTHING to say that the market cannot get higher. So again…should a client be investing in equity?

My take is simple.

1. Where the client is say 60 years of age with 40 years market experience, it is fine for him /her to invest.
2. Where the client is 55 years of age and started investing 22 months ago and invested in SIPs..investing more is  NO NO.
3. A Client with a lifelong love for FD and Real Estate and has come NEW for equity with 10% assets in it, lumpsum is a no no
4. For clients with a small amount to invest but no experience it has to be a sip
5. For a client with Rs. 22 crores in equity, personally I have advised a one shot one company investment of say Rs. 50 L
6. For a client who is now thrilled about the 22% return and hopes to replicate that, fresh investing is a no no
7. For most of us who cannot see the bubble – selling equity/ bal funds with “assured dividends” staying away will not hurt

Largely this looks like a trading market. However just last month I added some Cummins, Apollo Hosp, etc. without worrying too much about concentration risk or anything else. They have done decently and I am not worried….

Lots of investing is still happening – if you see the shareholder movement in Coromandel International, Apollo, Mahindra Hol Resorts, ….it is not clear at all.

Surely by not investing in a 25 pe market will not hurt you too bad. Most of the super profits we made in the market was in the buying cheap.

Tough times ahead really!!

Having said all that clients who wish to invest in equity funds should realize that the risk of investing has SURELY gone up in 2017 than it was in say 2014. Take a simple example Coromandel International was at 225 in June 2016 and I thought it was a good buy. In July 2017 while writing this the same share is at 450. The EPS has surely not doubled. So clearly the jump is hugely PE driven and partially backed by expansion in EPS.

If most of the growth has come through PE expansion and less through EPS expansion, YOUR TIME HORIZON HAS TO CHANGE. So if you have a FIVE YEAR PLUS horizon at the LEAST go ahead and do a SIP in equity funds. Which fund?

• equity fund with a large cap bias
• multi cap fund with dynamic allocation
• Dynamic fund – dynamic between debt and equity
• Foreign exposure – to markets that are currently doing badly

and please have low expectation. Spend some time learning about standard deviation, reversion to the mean, end point bias, starting point bias, ….it will tell you something about YOURSELF.