Many of you may have noticed that while the Indian equity markets have begun the year 2013 with an upward streak (gaining +1.6% in January 2013), the momentum seemed to have waned and thus now in the month of February 2013, we have depicted a descending trend (-1.4% until February 2013), with several worrisome factors in play.
 

Trifling roller coaster move of the Indian equity market

Base: Rs 10,000
Data as on February 18, 2013
(Source: ACE MF, PersonalFN Research) The market seems worried over host of issues such as:
 

• Widening Current Account deficit (which has reached 5.4% of GDP for September 2012 quarter and is expected to rise further to 6.0% for December 2012 quarter);
• How the fiscal deficit target would be achieved (although the Government is quite ambitious on its path of fiscal consolidation);
• Risk of sovereign rating downgrade (due to the aforementioned twin deficit problem)
• Persistent weakness in the Indian rupee (despite RBI intervention)
• Impact of removal of subsidy on diesel and most fertilizers, on inflation
• Lull in industrial activity
• What the Government would enunciate in Union Budget 2013
• Political turbulence ahead of 2014 general elections
   

And thus as result of all the aforementioned factors, investors in equity mutual funds too seem to be wary of holding on or even investing fresh money therein. It is noteworthy that equity mutual funds have lost about 4 lakh folios during the month. They had around 3.36 crore folios at the end of January, the lowest since March 2007, data with market regulator SEBI showed. During the period April 2012 to January 2013, equity mutual funds have lost more than 40 lakh folios.

So, it seems that investors who had invested in the exuberant bull phase of the Indian equity markets in 2007, and thereafter eroded their wealth in the aftermath of the U.S. sub-prime mortgage crisis followed by now the slowdown in global economy led by Euro zone debt crisis; have preferred to use every elevated level of the Indian equity markets to exit. Some investors too seem have taken short-term view and preferred to bag some gains provided by the markets in the last calendar year and since the period September 2012 to January 2013.

We are of the view that, since the aforementioned worrisome factors are in play for the markets, while investing in equity mutual funds it would be wise to adopt the Systematic Investment Plan (SIP) mode of investing, as it can enable you to even out integral volatility of equity markets (through rupee-cost averaging) and power your portfolio with the benefit of compounding. Moreover while investing in equity mutual funds, one should refrain from trading, and instead stay invested with a long-term investment horizon of at least 3 - 5 years. While selecting winning mutual fund schemes for your portfolio prefer funds which have a sound and consistent track record, consider mutual funds schemes from fund houses which follow strong investment process and systems.

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mfvblogs@gmail.com Feb 23, 2013 Thank you for the resourceful article

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