In one of our earlier columns we had discussed how investors must sift from the info avalanche and focus on information and action. Today we will discuss, of all the relevant information flow, in the context of your investment portfolio, what you need to worry about and what not. The basic criterion is, if it can potentially have a deep and fundamental impact on your investments, you have to worry. Otherwise, it is noise, or relevant information which you can be aware of, but need not act upon. Let’s look at it one by one in the current context.
There are geo-political concerns emanating from the Russia-Ukraine war and sanctions imposed by certain countries on Russia. There are supply chain disruptions globally, and resources like crude oil, natural gas and fertilizers are relatively scarce now. Consequently, inflation is multi-year high across the world. To combat inflation, central banks all over the globe are raising interest rates. This is a double whammy. On top of resources being dearer, high interest rates are making economic activities more difficult. Global growth projections are being scaled down. There are forecasts of recession in the bellwether economy of USA. If global recession happens, or growth is impaired significantly, there would be an impact on India. In particular, our exports, as they are a function of global demand. To draw a parallel, during the pandemic phase of 2020, our exports had slowed considerably. If exports slow down, our GDP growth would also be impacted.
Should you be worried about it? Both yes and no. Significant global events do have an impact on your portfolio. However, one fact of life is, you do not have control over what is happening in the world. So why worry? And the other fact of life is, India is the growth story now, and in the days to come.
With positive or negative developments e.g. higher or lower exports, our growth rate will be impacted, but only so much. We are relatively better placed than other economies of the world, even the developed economies, to overcome these challenges. Moreover, data show that equity market returns from various countries such as USA, India, and China, when plotted year-wise, vary significantly, even in today’s world of digital connectivity. When the situation is not clear, and there are limits on fresh investment in mutual funds investing abroad, you may wait out this phase.
When you have exposure to equity stocks or bonds or any other instrument in a company, and there is a deterioration in the fundamental quality of the company, it is a cause for concern. Here the question is, you are not an investment professional and it is not your job to track everything. If you are doing it through a managed vehicle e.g. mutual fund or PMS, or you are advised by a professional advisor, then it is his/her job to track, or guide you.
If you are doing it yourself, while you may be worried, at the end of the day you are not an investment professional.
To be noted, some event or the other keep on happening every day. What we are discussing here is a deep deterioration and not a minor negative event played up by a section of the media. When you come across a news-flow about a particular company, you may enquire with your investment manager/advisor, but leave it with the professionals. This is not to say mistakes do not happen. Sometimes stock prices do come down or credit accidents do happen. However, to err is human, and professionals also are humans. To draw a parallel, sometimes doctors may commit mistakes in a diagnosis or a pilot in landing an airplane. If you are doing it yourself, you have to handle it yourself.
Though this kind of event does not happen every day, this is something you have to be mindful of. To address this, there is SEBI, there are SEBI regulated investment vehicles, and there are investment vehicles not regulated by SEBI.
If you are investing through an investment vehicle which is not under SEBI purview, depending on the credentials, you should be either worried about, or at least be mindful of. Mutual funds, portfolio management services, alternative investment funds, etc., are SEBI regulated entities. There has never been any default in mutual funds in India. The credit accidents that have happened in the past such as . Infrastructure Leasing & Financial Services and Dewan Housing Finance Ltd., are investment risks that are part of the game. On the other hand, many investors have lost money in non-regulated plantation schemes or collective schemes or Ponzi schemes.
Sometimes it so happens that you have made an investment in an equity stock or real estate, and for a long period of time, the price goes nowhere. This is known as time correction. In price correction, the price of the investment falls, whereas in time correction, the price does not fall as such, but does not give you any return for a long period of time. It depends; sometimes it is not a cause for concern, just that the equity stock is taking time to be discovered or real estate is facing certain issues.
If you are not taking professional guidance, you may get confused by the information avalanche and how to act upon relevant inputs. There are aspects not within your control and there are events that do not change the fundamental quality of the investment. You need not worry about those. Otherwise, you may keep your antennae up.
(The writer is a corporate trainer and author)