Dull phase in Equity Markets: Testing times for Investors

A dull phase in life can be quite a challenge. Human beings by nature love and enjoy action: We admire the gushing waves of the sea, we also get pleasure in admiring the snow capped mountain peaks, but we seldom derive the same satisfaction by watching the barren land. Equity market investors also strive for action, because the swings in the market enable them to make money. Dull phases in equity market can be quite nerve wrecking for the investors. The markets are currently passing through a dull phase and investors must learn to cope with this phase. Market analysts call such phases as 'range bound movement' or 'consolidation phase'. What should one do in a dull phase:

• Take a break from the market: It is better to take a few days break from the markets rather than watch your portfolio move in a narrow range. This would help you to keep boredom at bay, because the more we think about the listless market, the more frustrated we get.
• Reshuffle your portfolio: The dull phase should be used to get rid of the dud stocks in the portfolio with blue chips. The blue chips have a better chance of outperforming the markets when markets resume their trend.
• Increase the cash levels: Dull or flat markets do not deliver a return on your capital, hence trimming the portfolio and increasing the cash levels/ debt exposure can see your capital earn reasonable returns. The surplus cash can be redeployed in equity markets once a trend reversal is evident.

Our equity markets are likely to follow range bound movement for a few months from now (say the next 4-5 months). The broad range being 5200-5700 on the Nifty. The range can be broken decisively on either side with the global news flow. The positive triggers would be: Normal monsoon, cooling of inflation, return to governance by the Govt. The negative triggers bothering the markets are: Withdrawal of stimulus leading to liquidity crises, political instability in the country, defaults in global markets etc. Let us bide these testing times without getting ruffled too much, because good times are likely to return to the equity market in about 6 months time. We need to be patient to reap the fruits of equity investment.