Systematic investing pays when markets correct - ET.

For those expecting the Sensex to touch 16,000 in the near term, last week's market trend came as a jolt. With inflation continuing its upward trend, there wasn't much good news and as a result, on Thursday, the Sensex lost over 400 points. It has once again brought back the fears of corrections at regular intervals and consensus is growing in favour of a weak market in the near term.

While the earlier sore points of high inflation and resulting higher interest rate regime continue to exist, the bad news during the week came in the form of higher crude oil prices. The mild surge in oil prices has strengthened the case for bears who are once again back in action. With traders too taking comfort in going short, one cannot expect a huge recovery in the stock prices in the coming days. Much of the uptrend would be triggered by short covering than value buying.

But the good news for long-term investors is that the market has begun to show resilience and the current weakness has factored in most of the bad news. The intermittent selling pressures , largely driven by foreign financial institutions, needs to lose momentum for the local investors to commit larger cash. The local institutional investors like insurance companies and mutual funds, have been sitting on a larger components of cash and have preferred to play the wait and watch game.

The strategy can't be completely different for retail investors. While those who are playing a long game can still have a go at equity, it would be advisable to opt for a staggered approach. In fact, many analysts recommend a much lower allocation for equity during the current year if the time horizon is less than two years. For such investors, the systematic approach would be a better option. In the case of direct stocks, buying at regular intervals would be the right strategy. The immediate question is how one chooses the buying opportunity .

A weakness in the market could be of two types. As has been the trend over the last couple of quarters, the markets slip into selling pressure on regular intervals where the indices end up losing over 300-400 points in a single session. On such trading days, there is a significant downtrend in most stocks and you can use the day to pick up stocks in large and fundamentally-strong mid-caps .

Buying in such a market trend is probably easier though one would be tempted to wait for the bottom . The easier option in such a case would be to fix a range for the index for getting into the buying mood. For instance, the index level could be in the range of 14,000-14 ,200 or even 13,500-13 ,800.

While the broader index level can make you jump into a buying mood, keep an eye on your individual stocks. There have been instances where individual stocks have managed to hold on to their levels or not buck up under pressure despite the general weakness. While such instances are far and few, investors should look for such stocks and investment decisions need to be driven by the strength and weakness of individual stocks.

While picking stocks in a weak market is probably much easier, particularly in large-cap stocks, another option for equity investors is to allocate a portion of the corpus for mutual funds too. Mutual funds allow you to buy into a larger basket of stocks and it's probably much easier for investors to take exposure in the current scenario. The added advantage with mutual funds is the fact that a systematic approach is much easier thanks to daily systematic transfer or weekly systematic investment plans.

Source ET

Happy Investing.!

Receive Free SMS Updates from us SMS JOIN IndianMoneyPlus and Send to 567678.
Help us growing Big and serve you better. Tell your friend about us .