Wednesday, January 9, 2013

What equities promise for retail investors in 2013

We promise according to our hopes, and perform according to our fears. - Francois Rochefoucauld

The Year 2013 has got off to a promising start. While the fag end of the year saw equity markets undecided over the fiscal cliff issue, some last-minute negotiations resulted in the US managing to avoid across-the-board tax increases and government spending cuts, which could have triggered a recession in the US.

As investors, you would be aware that the US in a recession could have major implications on global trade as well as foreign institutional fund flows or FII inflows. Let us look at what lies ahead for Indian equities this year. A number of headwinds remain but chances are that the positives will outweigh the negatives. The government has seen some pro-active and reactive measures especially since Finance Minister P Chidambaram was brought back in into the crucial ministry. The worst appears over for the Indian currency and the interest rate cycle appears to have peaked out. Repo rate cuts could begin as early as this month.

The Nifty valuations are reasonable for now and the room for much further upside remains. Predicting the market is a waste of time and in case you put your money betting on some short term targets, chances are you could end up losing money. To begin with, write down your financial goals. Equity has been one of the best performing asset class over a long period of time and you cannot afford to miss out a decent allocation here. How much you allocate depends on your risk appetite and your calendar of events.

Let’s look at some ways to benefit from the stock market.
  1. Trading with a well thought-out, thoroughly researched, patiently tested and rule-based trading plan.
  2. Don’t rely on market rumors. Chances are by the time you fall prey the stock may resume its downward journey.
  3. Keep emotions away. Don’t hold on to losing counters just because of some gut feel. Admit your mistake and get out with minimal losses instead. 
  4. Some initial success may prompt people to take huge bets with money that they cannot afford to lose. Exposure to equity market should be done in limits. 
  5. Do not put money kept aside for a near-term education, marriage ore medical expenses hoping to make quick bucks. Besides the financial loss you will end up emotionally drained. 
  6. Do not do complicated trades you cannot understand just because you heard some success stories. Remember, success stories are broadcast loudly. 
  7. Keep a stop loss on your trade and a target so that you can reallocate your assets when you achieve the same.
Stay in tune with news on the economy, government and of course the companies you invest in and that will help you take informed decisions. After all- Knowledge is the Edge.

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