The last 1 year Indian market is falling / correcting. Major indices ( nifty & sensex ) almost corrected by 27-28% from there peak which is created in Nov 11. Most of the stocks corrected more than 50% from there respective peak. It has been historically observed that our market correct for 12-18 months ( exception correction which started in 2000 almost continued for 3-3.5 yrs.) and in this correction it is all ready passed 12 months so lot of investors must be thinking is it right time to invest?
It has been observed that in long term equity has been given best post-tax return than any other financial instrument. The following 3 ways will give best possible returns in equity market.
1) Doing S.I.P. in 4-5 best diversified equity funds.
2) Investing when valuations are cheap according to fundamental analysis.
3) Investing when bottom is formed according to technical analysis.
FUNDAMENTAL ANALYSIS : - According to fundamentals it has been observed that when sensex / nifty P/E starts trading above 25 our market forms top, and when it starts trading below 12 it forms bottom. At present nifty P/E is around 17.25, so according to historical average our market is just undervalued ( not cheap, to become cheap it has to fall 25-30% more ) so there are fair chances it will correct more. But this may or may not happen you never know, it may create bottom here. So if some one waits for cheap valuation he may miss the rally.
TECHNICAL ANALYSIS :- Technically our market is in down trend since Jan 11. Right now it looks like that if on daily closing basis nifty closes below 4625, it may go down to 4400-4500 and may be up to 3600-3900 level. But once again you never know and it is really difficult to catch exact bottom.
Technically there is strong support in 4625-4700 area , so it may form bottom around these levels.
Historically it has been observed that whenever previous year's low was broken our market corrected for 25-30% from that level. The 2010 low ( 4675 ) has been taken out intra day on 23 & 24 NOV. but it was not taken on daily closing basis. If nifty gives daily and weekly closing below 4625 there are fair chances that our market will give correction of 20- 30% from this level.
So whether long term investor should invest at these level or wait ?
According to our view---- first decide out of investable money how much amount you will not require for at least next 5 years. And invest that much money according to one of the following solutions--
SOLUTION 1) -- Invest that money in equal installments for next 12 months.
2) -- (A) Invest 30% of that money at current level and if market don't fall much below current level then remaining 70% whenever there is long term up trend according to technical analysis.
(B) Invest 30% at 4400 level and if nifty don't fall much below then remaining 40% whenever there is up trend according to technical analysis.
(C) Invest remaining 40%at 3900 level.
3) -- Invest only after whenever there is long term up trend according to technical analysis. Which will be approximately 15-20% above from bottom level.
ACCORDING TO PRESENT SITUATION TECHNICALLY THERE WILL BE UP TREND ONLY IF NIFTY CLOSES ABOVE 5400 ON WEEKLY TIME FRAME., THIS LEVEL WILL CHANGE ACCORDING TO FUTURE PRICE ACTION.
Out of the 3 above solutions we think option 2 is good one.
For investment choose 15-20 fundamentally good companies and invest equal amount or choose 5-6 best diversified equity mutual funds and invest equal amount within them.
If someone is all ready invested in equity market then he should allocate fresh money only if his equity exposure is less than ideal asset allocation according to his age. THE THUMB RULE IS 100 - AGE , that much % should be in equity. So if someone is 45 yrs. old then 100 - 45 = 55% should be in equity.
DISCLAIMER: This Blog is meant for sharing my trading ideas only and no calls to be taken as trading recommendation. Visitors please do your own research or consult your advisers for safe trading.
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