Market Mayhem: An opportunity to invest for long term

Indian equity markets have gone into a tailspin in the first fortnight of 2011. At the current levels the Nifty and the Sensex have both corrected 10% from the peak recorded on Diwali day. Investors need not panic in the current situation, because this sharp fall has presented an opportunity to buy your favourite scrips at bargain prices. This situation should be seen as a "Sale" at discounted prices. The investors should approach this opportunity with the same enthusiasm as consumers throng to the retail market during a "Sale".  Investors should refrain from acting like traders, rather they need to grab this opportunity to create a long term portfolio.

The concerns on inflation and a marginal slowdownin the economy were inevitable and were visible even 3 months before, but were ignored by the market traders at that moment. Today they are being blown out of proportion to create panic amongst investors. The same analysts/ traders who were gung ho on Indian equity markets the other day are selling in panic. The markets in the long run have always rewarded the performers and punished the laggards. The situation will be the same this time too. As the quarterly results unfold we would see sharp corrections in the stocks that had run up in expectation of spectacular performances. It a good time to churn the portfolio by getting rid of the underperformers and including new stocks that have shown promise for the future.

With the Sensex and Nifty now trading at 15-16 times 2011-12 earnings the risk-reward ratio for investors has turned quite favourable. This should result in a yearly gain of around 20% from the current levels, which is quite attractive. The fixed income instruments may seem attractive on the face value, but they may still not be able to beat the inflation in the long run. Equities do remain the best bet for wealth creation in 2011 as well. But long term investors should be mentally prepared to expect another 5% downfall in the broader indices if the negative sentiment prevails longer. However, it would be safe to conclude that the current levels in the equity markets are an opportunity to start investing systematically. Investors are advised to continue their SIPs without panicking, as the growth prospects of the Indian economy remain bright as before.