The Hindu Business Line : Be brave enough to stomach volatility

DO screaming headlines in newspapers, proclaiming sudden loss of market capitalisation, freefalling indices, redemption pressure and lots more, scare you? Are you perpetually terrified that NAVs will decline and won't revive in a hurry? Do you normally suffer from paranoia when you come across novel investment ideas?

If you answer these questions with a big Yes, rest assured that yours is not an isolated case.

Lots of investors are with you, sharing similar views and expressing their concerns one way or other.

In fact, the last few days have seen these concerns come alive once again, courtesy a very volatile stock market.

Fund management circles point out that there is nothing new in such volatility. Stock prices have been indeed moving up and down sharply, and equity funds have seen their NAVs rise and fall as a consequence. Investors are expected to be brave enough to stomach such movements without protesting too loudly.

In real life, however, equity investors are often (some say, constantly) driven by their worries - a critical element that just cannot be wished away, however hard you may try.

But consider an investor who has moved out of an equity fund too early, well before the fund has started performing in line with expectations. He or she will, not surprisingly, fail to capture the best of the fund manager's skills.

Fund houses urge their clients not to be unduly worried when NAVs come off from their highs. A few well-known basics about the Indian market stand out, they say, adding that leading Indian companies are generally expected to turn out good results. The fact that decent corporate performance has already triggered substantial inflows from overseas investors only strengthens their case.

The naysayer will nevertheless point out that the local market has its own share of problems - a huge dependence on FIIs, difficult issues on the fiscal side, increase in international oil prices and the like. These, too, cannot be ignored by anybody.

On another front, NFO scene may well become more crowded as quite a few new ideas have been mooted. Among these are equity funds proposed by Franklin Templeton, HSBC, DSP Merrill Lynch and ING Vysya.

Also, newcomer Fidelity has worked out an ELSS proposal, which will have an investment strategy quite similar to that followed by its first (and the only one till date) scheme.

For the record, the last one month or so has thrown up a few unusual names in the big gainers and losers lists. We are referring specifically to diversified equity funds here.

As Value Research points out, Birla Sun Life Basic Industries (which has just moved over from Alliance Capital) has emerged as the top performing scheme in the category, thanks to 13.04 per cent gains.

The ones that followed were GIC D'Mat, HDFC Top 200 and HDFC Equity, each with about 10 per cent to its credit.

The losers' list featured the likes of Taurus Discovery Stock (minus 2.92 per cent), JM Emerging Leaders and Kotak MNC.

One month, of course, represents an exceedingly short stretch; no self-respecting equity fund will like to showcase its one-month performance.

Investors, fund houses feel, should stay on for a reasonable length of time before they actually call it a day. Patience, however, is a virtue that few of us are familiar with.

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

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