However, it was not just the market that exhibited record performance. At the same time, market players have also forged their own path and set new records. The case in point is the share of individual investors in transaction turnover, which increased sharply, from only 33% in 2016 to a formidable 45% in 2021. As a result, 10.7 million new demat accounts were opened between April 2020 and January 2021., breaking all records and exceeding the number of new accounts opened in fiscal years 20 and 19 combined.
This creates a classic chicken and egg puzzle. Have retail investors plunged into the market attracted by large gains or has the equity market risen due to increasing participation from retail investors?
Whichever lens you look at this from, there is no denying that the market has grown over the past 18 months and that there is a clear and massive shift in the market in terms of retailer participation. However, now that the market has had a stellar rally, many investors are wondering how they should position themselves for the future.
Here are some things to consider if you are looking to create an investment strategy within the context of the dominant investment landscape:
Don’t wait for the right time
In the investment world, there is no such thing as the right time, there is only the right investment. India is a story of long-term structural growth that should play out over the next decade. If you are already invested in the market, it is better to stay invested and reap the long term benefits of Indian growth. In the short term, it’s very easy to get swayed by market noise and trust the advice of “well-meaning” friends. Be judicious in your investment selection process – assess the multiple investment avenues through which you can gain exposure to equities. These can include index funds, balanced advantage funds, or SIPs in certain large and mid-cap stocks.
Invest in a phased manner via SIPs
Undeniably, when the markets are setting new highs, it can be difficult to go “all in”. After all, market volatility can reduce earned returns and cause you to make sub-optimal investment decisions. In order to combat this, you need to participate in a phased manner through SIPs. If you are getting your exposure to stocks through equity mutual funds, the best thing to do is to invest in those funds through SIPs. If you have already configured SIPs, you should not stop them – instead, you should continue existing SIPs and also start new ones or reload current ones. SIPs can come to your rescue even if you prefer to invest directly in stocks. Identify the quality and resilient stocks that are likely to benefit from India’s growth, then invest a certain amount of money each month to purchase those stocks. This way you end up doing a direct SIP in the stocks and can participate in all price points. As a result, you can enjoy the benefits of the average rupee cost and long-term membership. SIPs will also help you mitigate the impact of emotions and behavioral biases in the investment decision-making process.
Adhere to your asset allocation strategy
Your asset allocation strategy is at the heart of your portfolio. It takes into consideration your risk-return objectives and ensures that your portfolio is well aligned with your requirements. Your asset allocation strategy will dictate how much you allocate to stocks and will also indicate when exposure to stocks becomes too high for your convenience. It is at this point that you can consider rebalancing your portfolio back to your original allocations. Always remember that you should only redeem or exit your equity investments when you have achieved your specific goals; otherwise, you have to sit back and let the investment grow.
Just as retail investors are advised to keep investing during market downturns, even in the current environment, it would be best to keep investing while remaining committed to your asset allocation strategy.