Is it the Right Time to Invest in markets and mutual funds?

What a time to be an Indian equity investor. After overcoming all important resistances in June, markets opened gap up for 4-continuous days in July to take nifty over 19500 levels last week. But as we keep going up, the alarm of a nasty fall thereafter keeps on increasing. Also, we keep getting one question from the investors who missed the bus by staying in the sideline that is it the right time to invest, or do we wait more? While only God and a Liar can predict the movements of the markets right continuously daily, we thought we would pin our thoughts which assists you in making the right decision.

Let’s begin with what is driving the markets. This can be attributed to a lot of factors: the big boys are back, SIP book of Rs. 13,000+ crore every month is becoming a norm, and most importantly in an otherwise gloomy world India is proving to be an island of growth. And numbers back it.

Markets are coming from a long consolidation of more than 18 months; when Nifty hit its all-time high in October 2021, its EPS stood at Rs. 660, now it is Rs. 858. Its Price to Earnings multiple has seen a contraction from 28 odd levels to 22.7. Thus, in a way we can say markets aren’t expensive. However, caution is warranted as some pockets of the markets are seeing unreasonable values especially the Smallcap and Microcap space. While we can all debate on the sad state of the global economies and how India’s resilience will not last long, equity markets throughout the globe have seen a strong rebound, with NASDAQ and Nikkei up 32% and 25.7% respectively YTD. With earnings slated to begin from 12th of July, the IT heavyweights will be in focus once again.

Investing at peaks can be gut testing. Taking a leaf out of history, during Dotcom boom Nifty peaked at 5900 levels and took 4 long years to get back to the same level. We saw Rs. 100 becoming Rs. 40 during 2008-09. Similar things happened in 2010-2013 when markets didn’t go anywhere. These are difficult times as you must be patient as well as manage your behavior. However, for investors who have a long-term horizon it is an opportunity in disguise. With moderating inflation, clean balance sheets of the corporates, domestic macros paint an optimistic picture for the coming years. Markets movements shouldn’t guide you to invest alone.

This is the kind of markets when big investment mistakes are done and instead of getting tempted to ride this market quickly, spreading the money over time makes sense. Suppose your goal is still 10-12 years away, parking 10-15% in debt helps as you can book some profits from equity and park it here or take that money to invest when markets are quoting lower prices. Thus, rebalancing methodically has great advantages.

Often, we are also questioned as to which is the best day every month to do SIP. While many mutual fund investors prefer to stagger their investments, recently a famous fund house conducted research to find the best possible outcome, however, as many of us would have expected, the results were quite different. Whether you choose daily, weekly, or monthly SIP the returns are almost similar.

*10yr XIRR % on daily rolling basis for S&P BSE Sensex TRI Sept ‘96 – Mar ’23. Past performance is no indicator of future performance. Data taken from WhiteOak Capital MF.

Now, let’s us look at which date to select for monthly SIP to gain some alpha. As expected, again the same result. From the 1st to the 28th of the month the average return stood at 15.7%, ranging from 15.66 – 15.73%. Too much hard work for too little reward? Thus, playing the long game, sitting at the times of volatility can make SIPs an attractive proposition. You cannot control the markets but can be consistent to reap the benefits.

To help you further make the decision, we also checked what you would have earned if you started your SIPs at market highs (and lows) in the last 20 years. Surprisingly in both the cases you made 11-14% returns.

*Considered those Highs of Nifty 50 where the duration of SIPs is atleast 3 years. Past performance is no indicator of future performance. Data taken from ET Money Research.

Thus, when timing highs and lows doesn’t really matter much, it is for the investors to decide whether they want to sit at the fence or enjoy the gains of investing long term. Investing tactfully across assets, across geographies not only helps in diversification but also generates optimal returns.

The author is AVP & Investment Councilor, Epsilon Money Mart

Disclaimer: The views are personal views of the Author. This above note is only for information purposes and in no way can be taken as investment advice. The data is taken from available sources and to the best of knowledge is correctly presented. We make no representation for correctness of the data. Equity Markets are subject to market risk. Kindly consult your financial advisor before investing. Epsilon Money Mart Pvt. Ltd. is an AMFI registered Mutual Fund Distributor.