Don't focus on event-based investing

It is not easy being a retail investor on days like Monday. When the BSE Sensitive Index, or Sensex, dropped 500-plus points at the start of the day, investors would have been worried that their investments were taking a serious knock. During the day, however, it recovered slowly to close at 26,121 points, down 144 points.

Days like Monday are interesting because the markets react due to events such as elections or the Union Budget or some global event. Such days can also be ones when there is money to be made by buying or selling stocks.

“Today (Monday) was a great example to buy when the chips are down,” says investment advisor Arun Kejriwal. For example, Sun Pharma and Dr Reddy’s Laboratories were down almost six per cent and four per cent, respectively, on Monday's trade providing good entry points to investors who might have found these stocks too expensive in the past. Both these stocks are down 17 per cent in the past month.

Similarly, when the market shoots up sharply, it gives investors the opportunity to exit their bad stocks. There have been several instances in the recent past when the Sensex rose on global cues when the Federal Reserve did not increase interest rate. Stock investors, in those days, would have got a good opportunity to exit their under-performing stock markets. According to Kejriwal, for stock investors, it is a good strategy and one can buy a stock that you are comfortable with during such sudden falls. However, he believes that an investor should not use more than 5-15 per cent of their portfolio for such trades.

In case of pure mutual fund investors, the strategy has to be completely different. As Hemant Rustagi, CEO of Wise Invest, says: “A mutual fund investor cannot have a strategy around such events. Depending on their time horizon, they will have to keep on investing over a period of time to make money. During events, it is the job of the fund manager to take a call.”

According to him, the mutual fund investor is different from the direct stock investor because he has the help of a fund manager who will buy and sell on his behalf. And what has to do is build a portfolio of funds for different market conditions. An ideal portfolio should have large-cap, mid-cap, small-cap, thematic and other schemes.

At a single point in time, all of them will never do well. That is, while banking and fast moving consumer goods funds have been doing well, infrastructure has not. That, however, does mean one should not invest in the latter. “Sooner or later, say two-three years or more, even the core sector of the economy will start doing well. Then, the units of these schemes (pure infrastructure and not schemes that invest in diversified stocks) will give healthy returns to the investor,” adds Rustagi.

In a typical investor’s portfolio, there are both stocks and mutual funds. Such investors should take an advice from a professional (unless he is well-versed with the market) to buy or sell on such days.