Financial assets customarily draw a certain degree of volatility on accounts of information flow during a certain period. No asset class is designed to move in one direction, and the presence of volatility is inevitable when there is a flow of events affecting it.
Therefore, as 2019 election closes in, volatility in the market is foreseeable. Wild swings in asset price are bound to unnerve investors and make them vulnerable to making inconsistent decisions.
As the current government is expected to maintain its political realm in next election, investors can bet on sectors which have been in focus since it took over the office in May 2014.
The government also highlighted a specific agenda in the last Union Budget concentrating on the development of rural infrastructure with an aggregate allocation of Rs. 14.34 lakh crore, and increasing rural income through the various social schemes.
The ‘affordable housing’ theme which is a key project of the current government is expected to benefit the real estate sector, while the Prime Minister’s pet project on rural connectivity to operationalize 56 unserved airports provides huge opportunity in the aviation sector.
The Agri-market Development Fund set-up for Rs 20,000 crore is expected to further boost the chemicals sector focused on agriculture which has recently gained strong momentum.
Therefore, with the political regime in favor of the current government, it’s imperative for the investor to align portfolio in according to a specific theme.
Having this basic understanding, the evaluation of strategies and tweaking on portfolio level becomes imperative, while at same to have a strong command over human emotion.
Rebalance with the right size of asset-allocation:
This is a core approach to construct a dynamic portfolio to tackle volatile regime and widely recommended strategy.
However, having a right size of asset allocation is even more imperative to serve the intention. Any allocation oversized or outweigh will have the adverse implication in a portfolio.
Proper diversification within asset-class:
Although it is similar to asset-allocation, it is primarily focused on diversification within a chosen set of asset-class.
The investor usually misinterprets diversification, and take concentrated allocation which undermines the objective of asset-allocation and diversification. Thus, have an adequate diversification on the basis of assets-class as well as within sub-asset class.
Avoid falling trap for value hunt:
During a volatile regime, the market tends offers price at discount especially in equity segment. Therefore, it becomes imperative for an investor to understand the fundamental dynamic of business, and avoid falling prey for value hunt. Every underlying asset-class should be backed by core-fundamental which derives its intrinsic value.
Keeping adequate cash:
While avoiding a value-trap it is also equally important to sit on cash to extract value from foreseeable events with uncertain outcomes.
This cash can be parked in liquid funds, and deploy when market provides attractive opportunity. Financial asset tends to react to certain events, thus offers both exit and entry option.
Control over psychological emotion:
Lastly, it is important to understand that volatility is not a risk, and it is short-live in nature. In long-run, market revives from its downfall, and thus it becomes important for an investor to resist short-term volatility to stick with the strategy.
In view of the unrest poised from events like an election, the need for reminiscing the dynamic of financial asset-class is imperative for every investor. Investors should primarily comprehend and differentiate between risk and volatility, which doesn’t resemble within its nature.moneycontrol