Your money: time to profit, invest again when the market corrects

Investors should invest in the best stocks by studying the price-earnings (P/E) history, management outlook, industry outlook, dividend yield, and book value of the stock. This can prevent the investor from getting trapped in this very volatile and fluctuating market.

By Ashima Aggarwal

The world is changing and the new era is that of pizzas delivered in 30 minutes and noodles in 2 minutes. The philosophy is not much different for current investment strategies as well. We have seen in the recent past that many initial public offerings (IPOs) have never touched the opening price; some prominent examples are those of Ujjiwan Small Finance Bank, General Insurance Company Ltd, New India Assurance, etc. This clearly shows that it is about being more vigilant and being ready to enter the market at the right time. The old adage about investing for the long term and reaping the benefits in the future is still true, but only in certain scenarios.

Tax implications
Previous investors believed that if the investment was held for the long term there would be no tax implications when it was sold – there was no Long Term Capital Gains (LTCG) tax – and dividends were also tax exempt. shareholders. But recent tax laws have changed that with a tax burden on investors. The difference between the tax on the LTCG and the short-term capital gains (STCG) is now only 5%.

Fluctuating bond yield
With the changing stock market scenario in response to economic fluctuations, market sentiment and current Covid pandemic conditions; the bond yield also fluctuates strongly. At the start of 2020, everyone was heading into bonds (to gain stability in investments) as the stock market was down. But at the end of 2020, we have a stock market boom and investors are switching from bonds to stock markets again (because bond and stock markets are inversely proportional to each other).

Stock market rise
In February-March 2020, Nifty bottomed out at 7,600 points and in just 10 months it currently sits at 15,000 points, which is exactly double that. Most stocks are trading at their all time highs and it’s time to reap the benefits. Investors should keep enough cash on hand to invest again in the near future at the first opportunity (when the market corrects) and the investment should be more stock specific rather than industry/sector specific. Investors should invest in the best stocks by studying the price-earnings (P/E) history, management outlook, industry outlook, dividend yield, and book value of the stock. This can prevent the investor from getting trapped in this very volatile and fluctuating market.

Furthermore, it has been observed that although the average annual returns of most long-term stocks are between 15 and 25% (which is good), if we go into the finer details, we will see that there were many periods when the return was negative, so it would have been better if the investor had withdrawn his money and invested elsewhere by constantly watching the portfolio/market/stock with vigilance. He could have achieved a return of more than 25% also by doing so.

The author is Assistant Professor, Amity Business School, Noida

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