"Sell in May and go away". This is a catchy phrase which is popular among investors in the western markets. In United States, it is historically observed that, May-October is a period where equity markets usually stay volatile and they underperform. Therefore, it is believed that, investors and traders sell equity holdings in May and get back to investing only in November. PersonalFN believes one would be better off if one avoided such superstitions. Equity markets can surprise you always like they have surprised many investors in India this summer.

Investors back home seem to be completely ignoring this old investing tenet. Strong mandate to BJP led NDA at Lok Sabha elections has pushed equity markets to new highs. Markets are refusing to correct. S&P BSE Sensex has closed above 25,000 in the first week of June and is still going strong. Assets under Management (AUM) of mutual fund houses are rising. AUM crossed Rs 10 lakh crore-mark for the first time in May. This was a jump of nearly 7% over AUM recorded for the month of April.
 

Steady rise in Assets under Management

Data disclosed upto May 31, 2014
(Source: SEBI, PersonalFN Research)  

In April, AUM went up by about 14.5% as compared to that in March. This rise was mainly on account of huge inflows in liquid and liquid plus funds. But now that equity markets are flying, retail investors have started coming back to markets. Inflows in equity oriented funds have gone up in May which has been the main reason for AUM crossing Rs 10 lakh crore-mark.

About 8 months ago, if someone would have predicted 25,000 levels for S&P BSE Sensex by May 2014; hardly anyone would have taken it seriously. Investors were shying away from equity. Mutual funds were facing redemption pressure and thus were net sellers in the market. Now the situation has reversed. Risk appetite of investors has increased and mutual funds are witnessing huge buying.

Is this trend sustainable?
PersonalFN believes it is good news that investors are getting back to equity markets. However, what is worrisome is they are playing the momentum. Till last month retail investors were selling their equity investments and quitting markets but now that NDA has provided a stable government at the centre, investors have gone bullish again.

Will investors be disappointed again?
PersonalFN believes upswing in the market may take a pause sooner or later. Valuations are looking expensive on trail earning basis. Markets would soon start tracking routine events such as corporate earnings, inflation numbers, RBI monetary policies and so on. NDA government will have to take tough decisions which may be unfavourable for markets but may be good for the economy in the long run.

What should investors do now?
Those who have entered just now shouldn’t feel disappointed in case markets correct, going forward. PersonalFN is of the view that, before putting money in equities directly or through mutual funds, you should be sure that you don’t need that money for next five years at least. PersonalFN recommends investors not to get carried away by the current market rally which is getting stronger by every passing day. PersonalFN believes, investors should concentrate on getting asset allocation right. Those who want to take exposure to equity markets at this juncture may opt for Systematic Investment Plans (SIPs). Taking SIP route helps you average out your buying when markets drift down.

There are benefits of investing as per your personalised asset allocation. PersonalFN provides extensive advice on money matters and helps people plan finances for achieving their long term goals.

Add Comments