What should investors do in a bear market?


The stock markets are in a bear phase and the trend is unlikely to change in the near future. Investors need to brace themselves as the ride is likely to be choppy, warn experts.

The slowdown in China, the fall in oil prices and the rising US interest rates resulted in a more than 20% fall in the global stock markets, including India, that are now haunted by the ghosts of 2008.

The Indian stock markets are unlikely to see a recovery in the immediate future. One of the reasons is the subdued earning posted by India Inc for the last four quarters. The report card is not likely to be any better even for the quarter ending December 2015.

Stock markets are slave to corporate earnings. “When the earnings trajectory shows an improvement, the markets will follow,’’ says Gautam Sinha Roy, fund manager, Motilal Oswal AMC.

The good news is that some companies in certain sectors are posting better results. “Compared to the previous quarters, the third quarter results till now have been slightly better or in line with expectations for most of the companies,” says Pankaj Tibrewal, fund manager – equity, Kotak Mutual Fund.

Roy is confident that the results for quarter ending March 2016 will show an improvement.

“The sectors that are likely to do well are retail, auto, pharma and IT companies,’’ says Roy. Commodity, infrastructure and banking sectors (both PSU and certain private sector banks) are not expected to do well, according to Roy.

Even in the sectors that are likely to do well, not all companies will perform. “Certain select stocks are likely to perform better than others. Stock picking will be rewarded,’’ says Tibrewal.

The other good news is that India’s fundamentals are positive. “Most of the things one dreamt of say a few years back are now a reality. Low inflation, low crude oil prices, low fiscal deficit, lower current account deficit, lower commodity prices,’’ points out Tibrewal.

Despite these positives, why is the Indian market in a bear phase? One reason is the global sentiment. Calling India the “best house in the neighbourhood”, Morgan Stanley attributes the slow growth trend in the last 12 months to weak external environment and not a “perceived” slowdown in the pace of policy actions.

The selling by the FIIs (foreign institutional investors) is one of the main reasons the Indian stock markets are tanking. “It is a function of liquidity and is FII driven,” says Roy.

Despite the volatility in the markets, experts say that equities is still the way forward. “Over a longer term, say around 3-5 years, equities as an asset class should outperform most of the other asset classes,” says Tibrewal.

Mahesh Patil, co-CIO, Birla Sun Life advises investors to adopt the SIP (systematic investment plan) for investing in the stock markets. “Investors must adopt the right approach to investing and have realistic expectations of returns,’’ he says.

But that does not mean that investors should rush to invest in equities either. Investors should adopt a ‘cautious investment strategy’ to ride this volatile period in the stock markets. “After all, the volatile periods provide the best buying opportunity,’’ says Roy.

Tibrewal advises that if you planning to invest Rs 100 in equities, then invest 50% through SIPs over the next 3-5 years. The balance 50% should be kept aside for event related volatility, such as China slow down and similar global turbulence, any earnings disappointment of December 2015 quarter creating a correction in market, etc. In the absence of significant event risk, one can look at fresh issuance opportunities with attractive valuations in IPO (initial public offer), OFS (offer for sale) and FPO (follow-on public offer) in the remaining 50% of the balance amount.

Thus, if the markets are down say due to a major global event, then you can invest a lumpsum amount at such a time to take advantage of the low prices in the markets.

“Bear in mind, that equity is a long-term play,’’ says Patil. So invest with at least a three to five year time horizon in mind.