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NEW DELHI: The week gone by has left equity investors bruised and battered as a series of rate hikes by central banks across the globe have well and truly ushered in a new age of tighter financial conditions after the easy money days of the past two years.

With the Reserve Bank of India, the US Federal Reserve and the Bank of England all hiking interest rates in the space of two days, benchmark domestic stock indices have suffered a meltdown with investors losing a mind-boggling Rs 11.8 lakh crores based on market capitalisation of BSE listed firms.

Navigating the market turmoil is no easy task, especially as foreign institutional investors show no signs of letting up on their largest selling spree in Indian equities since the global financial crisis of 2008.

WHAT SHOULD RETAIL PLAYERS DO?
“For long-term investors, the best course of action would be to stick to their asset allocation plan and not tweak the portfolio too much. Global markets go through these sharp corrections and mature investors have learned to live through them,” Abhay Agarwal, Founder, and Fund Manager, Piper Serica told ETMarkets.

The fund manager of the SEBI Registered Portfolio Management Service Provider tells investors not to increase the allocation of equity in the overall portfolio by indulging in ‘bottom fishing’ because the current selloff could carry on for longer.

Over the past week, the BSE Sensex and the Nifty50 lost 4 per cent each.

Agarwal says that if one is under-allocated to equities a preferred strategy would be to start deploying funds in tranches in high-quality stocks that have very stable business models.

“Domestic investors, buying the dip so far, may also lose their nerve in case of a sharp correction. There may be a situation, even if for the short term, where investors prefer to get in cash rather than buy the dips,” he said.

While resilient buying interest from domestic investors has cushioned stock markets amid huge sales by FIIs, Agarwal warned that if FII sales pick up in the short-term, the domestic flows may not be sufficient.

The Nifty has given up less than 10 per cent despite sales worth a whopping $23 billion by FIIs over the last seven months. This is in stark contrast to the 50 per cent slump in the headline index witnessed in 2008 when overseas investors sold $10 billion worth of stocks.

WHAT TO AVOID
With the RBI commencing on a rate hike cycle and signalling its intention to suck out liquidity through increases in the Cash Reserve Ratio requirement, Agarwal warns of investing in highly leveraged companies.

“…companies that are either heavily leveraged or need a constant infusion of bank funds without being investment grade will find it very difficult going forward.”

The portfolio manager also tells investors to refrain from investing in what he refers to as ‘story stocks’ which have weak fundamentals.

Agarwal says that if investors have picked up such stocks in a speculative fervour, they should immediately exit them as these stocks, once the market loses fancy, sink to rock bottom.

“Also, stay away from all companies that may have a great brand but no clear to the path to profitability especially the upcoming IPOs,” the fund manager said.

The on-going global shift to a regime of higher interest rates and the flow of global capital out of riskier emerging markets to the US implies a testing time for markets, characterised by high volatility, Agarwal said.

“Investors who understand that equity investing is only a form of managing savings will be able to navigate this volatility at ease and will benefit from it by wisely increasing allocation,” he said.

“Traders are bound to get whipsawed. Before making any decision, it will be best to get sensible professional advice and act accordingly.”

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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