The stock markets in India are consolidating at the moment after a good rally post the Union Budget announcement. Analysts believe that the markets would trade in a range for next few weeks before making a decisive move from this range. Some of the major triggers include annual result season which will start next month and global developments in the USA, Chinese and European markets. Many investors are looking to enter into the stock markets and in fact there is no right or wrong time to enter the market. It is important that people should look for investing from long term perspective and have realistic returns expectations from their investments. Also people should not have only equities or equity based instruments in their total investment portfolio. It is important to invest in various diversified investment instruments.
These are some of the important aspects of building and managing an equity portfolio:
First of all, it is very important to set realistic expectations from the equity investments. There is no doubts that equity based investments have given dramatic returns during certain periods but it is important to keep in mind that past performances may not be repeatable in the stock markets.
The investors should think about the investment horizon, the risk that they can take and the time that they can devote in tracking/maintaining their market investment portfolio. This will help them in identifying the right investment instruments within their portfolio.
The personal risk profile depends upon many individual factors like age of investor, financial background of the investor, earning visibility and stability and family background etc. This also helps in understanding the right investment instruments.
Investors should think about allocating a percentage of his/her total investment portfolio to equity based instruments. The investors should think about other investment requirements balance their total investment kitty among various kinds of investment instruments like life insurance cover, medical insurance cover, investment in tax saving instruments, sufficient liquidity.
The stocks are categorized into sectors based on their business focus and industry. Usually, all sectors do not outperform the markets. The performance of various stocks and sectors depend on the broader market conditions and macroeconomic conditions in addition to the performance of individual companies. Therefore it is recommendable to identify the sectors whose outlook is good as per current market conditions. Investors should look for diversification in terms of identifying more than one sector and within a sector selecting more than one stock to invest. An ideal equity portfolio should have 8 to 10 carefully selected stocks. It is important to keep an eye on market developments and keep shuffling the portfolio based on changes in the market conditions.
These are some of the ways by which people can identify the sectors/stocks for their portfolio:
Self analysis of the stocks and sectors is mostly suited for the experienced investors or people who have done specific study/courses in stock market investments. This includes past performance of the stock with respect to market indices, outlook of the sector, management guideline for the future on business/earnings visibility etc. Other investors can perform some basic calculations to build their own opinion on picking the stocks. For example, find the PE (Price to earnings) ratio analysis of a stock and compare it with its own historic PE ratio and the PE ratios of its peers.
Most of the investors rely on stock tips from market experts, stock brokers etc to invest in stock markets.