The Hindu Business Line : Is this a dangerous period for ordinary investor?

A FRIEND in the investment advisory business, one who is lately directing clients' savings into equity MFs, claims that these are dangerous times for the ordinary investor.

He dishes out his prime reason: All manners of investors are making money from all sorts of stocks and there is more hype about seemingly-inept companies than what is good for the market. In short, happy days won't last for ever.

One could not have agreed with him more when it comes to some of the arguments that are being put forward. True, the indices are rising at speeds that beat imagination. Mutual funds have been riding the wave and investors have become quite accustomed to their ways.

Does this leave any room for the sudden convert to contrarian thinking, for the doomsayer who asks you quit while the going is only too pleasant? While the answer is for the individual concerned to choose, there seems to be a huge case for profit-booking.

"Take profits while you can, because there may not be any left if you wait for too long". That is quite likely the recommendation doled out by responsible advisors, especially those who interact with clients closely, perhaps on a very intimate basis. To what extent such profit-booking should be made is, once again, a personal decision. However, a partial realignment may well be considered at this stage.

Talking of the indefinite times, allow us to jog your memory. The Sensex, even as we write this, has crossed over the 9,800 mark. Lots of stocks are surging irrespective of market cap, fund managers are signing bold statements in their fact-sheets, analysts are whirring on popular business channels... all factors point to the general state of bullishness.

So what could possibly be wrong with such a state of affairs? Good question, that, but one with no straight and easy answer. Most fund managers honestly believe that the Indian economy will continue to grow, driven by factors such as high domestic consumption and low interest rates.

Mr A.K. Sridhar, CIO of the country's biggest fund house, UTI MF, feels earnings growth will be strong in sectors such as software, engineering, construction, power equipments and cement.

Most banks, he adds, are recording healthy credit growth, both at the retail and corporate levels. India is expected to add hugely to its power capacity in the next few years. Further, a number of core sectors are seeing the execution of capacity expansion plans.

If you wish to know more, tune in to Mr Sridhar's dictum: "Indian equity market will continue to be a stock picker's paradise at least for the next three years. One should continue to remain invested in equity and can expect to get much superior returns compared to any other asset class in India today".

Where does all this leave debt? The debt market, however flat is may be, seems to have a mind of its own and may well regain significance once equities start ebbing. While that may not happen in a hurry, the MF investor need not ignore it altogether.

At the end, the average fund investor should keep his asset allocation right. Investing in just one asset class may not be a good idea at all. And it will also pay to remember that old, oft-quoted adage: More money has been lost by reaching for higher yields than at gun point.

Feedback may be sent to nilanjan@thehindu.co.in

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