The Indian economy is slowing down. The growth in March quarter was at five-year low of 5.8% and for the full year, it was down to 6.8% based on government data.
In past, consumer spend and government spending kept the economy going but the default from IL&FS last year had debilitating effect on the NBFIs (non-banking financial institution). The bank became more cautious in lending money to NBFIs. This in turn has an adverse impact on the consumer spend. There has been significant slowdown in auto sector and housing sector is still grappling with the inventories. The job growth is anaemic and is discouraging consumers to open up their wallet. The recent budget did not have any significant proposals to give boost to the job growth and economy. The higher tax outgo proposition for super-rich and FPIs has negative psychological effect in short term.
The global market is not doing well either. Lingering Brexit has continued to hinder the growth of UK and European economy. US and China trade war has not helped global markets. China had one of the slowest growth in years. The political crisis between US and Iran is keeping market at edge. Globally, central banks are cutting interest rate in anticipation of slow growth.
In short, after 10+ years of Bull Run, the US economy is tiring and global economy is not looking well either. Indian economy has slowed down substantially and it will be a while before it comes back up. Nifty is down approximately 1000 points from its recent peak and closed at 11,085 yesterday (30th July). The 7% to 8% return over last 5 years in equity asset class is nothing to cheer about considering that the same return could have been made in other asset classes with lesser risks. This has been humbling experience for die-hard market bulls and creating apprehensions for the new investors who were expecting it to be a full-blown bull market.
In this scenario, what should an investor do?
Please note that timing the investment in Equity market is one of the most difficult things to do. You should only invest in the Equity market for long term (preferably 10+ years) as it will help you manage the bull-bear market cycle better.
If you are investing for long term, you can peacefully continue to do periodic investment in index / Large cap funds in alignment with your portfolio allocation. As, you come closer to your goal, you should move money from Equity asset class to more conservative asset classes.
For investors who are better aware of local/global economy and market cycle, and want to do tactical adjustment to portfolio (not recommended though), to align with prevailing economy/market conditions, can consider exploring one of the following options:
1. Market to come back after 1 year
While this scenario is little optimistic at this point of time but if it were to be true then one should keep building exposure to Equity markets incrementally and not worry about any tactical adjustment.
2. Market to come back after 2 years
This appears to be more plausible scenario at this point of time, it might be prudent to move part (up to 20%) of Equity investment to debt instruments and move it back to Equity after a year.
3. Market to come back after 3 years
While this appears to be pessimistic scenario, but if it were to be true, investors can move part (up to 20%) of Equity investment to debt instruments and then move it back to Equity after two years.
The coming years will be testing time for the equity investors as the bull market has not taken off the way it did during 2004-2007 period and the economy has already slowed down. There will be gestational period after which the market will take off again in meaningful ways. Be ready for sideways market and sub-par return from equity market in coming 1-2 years but be patient and stay the course. You will have the last laugh in long term.
P.S.: I believe in periodic investment in Equity with long-term commitment. The tactical decisions discussed in this article are not for common investors.
The writer is a SEBI Registered Adviser and Founder of FinMyn (https://finmyn.com). He provides Fee-Only Financial Planning and Investment Advisory services. If you want to know more about him, click on https://finmyn.com/about/.