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

Investors who have the wherewithal to research and select stocks should start SIP directly into select midcap and small cap stocks for a longer term

Even as the Indian share market is riding at record high levels, a few events can hurt near-term sentiments on D-St, said Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities. In an interview with Surbhi Jain of Financial Express Online, Devarsh Vakil advised investors, who are looking at long-term wealth generation, to keep a systematic investment plan (SIP), as the power of compounding starts working when investors remain invested for the longer-term. For retail investors, Vakil suggested sticking to asset allocation plans. Here are the edited excerpts.

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1. What’s your take on the current Sensex, Nifty rally? What are your market expectations for the near term?

We are cautious on the markets for the short term from a tactical point of view. China’s real estate debt default fears as well as the announcement of tapering by US FOMC are making us circumspect on the markets. These events can hurt near-term sentiments on Dalal Street.

2. How do you explain the trends in gold/silver prices currently?

The Dollar has been strengthening lately following the announcement of cheerful US economic data like retail sales and falling jobless claims. Bullion prices are likely to remain soft as the greenback strengthens in the near term.

3. What’s your Sensex and Nifty target both in the short and long-term?

We do not forecast aggregate index levels over the longer term. We follow a bottoms-up approach – where we analyze individual companies and forecast their financials over the next 2 years. We form a view on prospects of individual companies and ascertain suitability for investments from a few quarters to a couple of years’ time frame. We analyze index only from a trading perspective and cull-out momentum trading opportunities for our customers who want to trade in derivatives.

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

Many retail investors who have recently started investing in equities on their own have not experienced market volatility. Markets do not rise in a straight line and they need to be aware of possibilities of market corrections. It is advisable to create some dry powder that can be put to use on account of corrections in the equity markets. Retail investors should stick to their asset allocation plans. If the equity portion has swelled bigger than what the plan envisaged they should shift some capital towards fixed-income assets.

5. Should investors look at select mid and small-caps for the next five years

Systematic investment plans are ideal for long-term wealth generation. The power of compounding starts working in your favor when you choose the correct instrument and remain invested for the long run. Investors who have the wherewithal to research and select stocks should start SIP directly into select midcap and small-cap stocks for a longer-term. If you are new to the investing world, it is advisable to select a few standard funds and do SIP for a longer-term. Invest only the amount that is not required for the next few years.