‘Equity prices are determined 95% by the future’

BL Research Bureau | Updated on August 09, 2020 Published on August 09, 2020

Analysts chart out investment strategies for the volatile Covid period

What are the investment strategies an investor should follow, in the current volatile stock market conditions and low interest rates? Should investors opt for value or growth strategy? How to make the best use of the power of compounding? What is more important in investing — temperament or intellect?

These were some of the questions answered in the webinar — ‘Investment Strategies for Retail Investors: The Do’s & Dont’s’ — held as a part of SMART Investor series, an investor education programme organised by ICICI Prudential Mutual Fund and BusinessLine.

Bharat Shah, Executive Director, ASK Investment Managers, spoke about investment strategies, in general while S Haresh, Zonal Head, South, ICICI Prudential Mutual Fund, focussed specifically on mutual fund investments. The discussion was moderated by Lokeshwarri SK, Head of Research, BusinessLine.

Haresh stressed that while investment in equities and equity linked products are prone to market volatility, equity linked products deliver high returns in the long run. He highlighted how rupee cost averaging can benefit an investor if invested through systematic investment plan, systematic transfer plan and systematic withdrawal plan.

Six strategies

He also presented six strategies for mutual fund investors explaining the power of rupee cost of averaging, power of compounding, investing in debt schemes, auto rebalancing of portfolio, constructing core and non-core portfolio, how mutual funds help in financial planning and investors’ behaviour towards investment.

While equities market can fluctuate in the short term, particularly at a time when there is disconnect between economy and market movement, Shah said he considers markets to be a forward looking and a relentless pricing machine.

“There is a fundamental difference between the view of the market and the economists, as investing is 95 per cent about future and less than 5 per cent about the present and the past,” he said.

When asked about the choice between value and growth strategies, Shah said investment should be based on three parameters.

“There has to be an earnings growth, it has to be predictable, sustained, durable and simple to understand. That it is the essential ingredient for creating value,” he explained.

He further added that “growth in itself is important but not enough till it’s supplemented by quality of growth. It has to be contributory rather than toxic. Also value in terms of margin of safety too is important. Value today and price today show the margin of safety.

“Value tomorrow and price today is the definition of the compounded returns that you are likely to make over a period of time”.

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Published on August 09, 2020
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