Don't Worry about the Markets - Get Ready for Volatility

Posted On Wednesday, May 27, 2015


"Market tanks 630 points!" you read on a Friday, and on the following Tuesday, "Market gains 500 points!" And again on the following Monday, "Market loses 360 points". Not the kind of news investors enjoy. Too much for an investor whose eyes are always on market movements.

Indeed, the stock markets have had a very volatile period the last couple of days. The market that was in a steady rally starting from September 2013, a "hope rally", beginning with Mr. Narendra Modi's nomination as the Prime Ministerial candidate by his party, the rally got a few notches. Going by definition the market actually had a correction (a correction is typically 10% change in market level in a short period), although a minor one, according to us.

So are we implying the markets need to correct further? It's a YES! In fact, in our view we are not even close to a decent correction, with the disconnect between ground realities - absence of capex, demand and good earnings - and stock market levels being more evident now.

We don't wish to sound like merchants of doom but by putting this across, in the event it happens we hope that investors will be prepared to do what is best for them. Knowing the rationale behind a significant fall (or rise), knowing that a correction was due, and basically knowing that volatility is the essence of markets will help you score well as an investor.

Be market neutral, ignore market levels
That's why we would endorse a "market neutral" investment approach for investors. Where investors do not sway to market movements - flee with all they invested when markets seem to be falling and run in to try and capture gains when they are rising.

Because nobody is good at predicting market moves. Investors tend to exit when they should enter and enter when it's better to tread cautiously. However every tempered investor knows that over a long period of time equities have shown themselves to be among the top avenues to create wealth.

Sample the returns delivered by equity mutual funds over different periods -

Index 1 Year2 Year3 Year 4 Year 5 Year 7 Year 10 Year
CRISIL - AMFI Diversified Equity Fund Performance Index43.10%31.23%21.77%14.25%13.39%12.42%18.73%

Note: Returns as on March 31, 2015; Past performance may or may not be sustained in the future.

So such tempered investors would be unfazed by the little disturbances that come midway. They would focus on asset allocation and stick to their investment plans.

We’re not worried about the markets
At Quantum AMC, if you have been following our newsletters, the message put across by the fund managers of Quantum Long Term Equity Fund has been constant: we are market neutral when it comes to managing our investors' portfolio. We, like the rest of the world, don't know whether the market will go up or down tomorrow, and honestly it does not matter, as our portfolio selection has nothing to do with market timing. It is only meaningless noise and doesn't add value. However what they actively monitor is the valuation of stocks. When one of the stocks in their radar hits the buy level, it would be executed regardless of if it was the day the markets hit their all-time high.

Markets work on mass psychology patterns, and in the short term they could defy ground realities. In our view this is what we have witnessed in this rally. Therefore cash levels in equity schemes still continue to be at a high level as the fund management team's research still indicates expensive valuations.

But this does not make us scared. We witnessed a similar situation in the initial years when we had just launched the Asset Management business. The markets, according to our research, were overvalued and our flagship fund would underperform… until the time correction occurred, and then the fund took off!

So we would stick to our guns and wait, until either a correction occurs or our valuations outlook warrants a dramatic revision. In the meanwhile we would, of course, be looking out for buying opportunities that could emerge even in this present scenario. Because we firmly believe in the long term growth story of India.

We'd advise you to do the same. Stick to your guns, stick to your equity investments and asset allocation. Don't fret over fluctuating market levels. Think long term and remain focused on your financial goals.

If you do this, stock market tickers blinking with red, downward pointing arrows won't make you nervous. You’d not lose sleep at night, in knowing that these disruptions are unlikely to shake your long term investments. You'd have laid the foundation for a solid fortune in the long term future. Do consult your financial adviser for investments related matters.

Product Labeling

Name of the Scheme & Primary BenchmarkThis product is suitable for investors who are seeking*Risk-o-meter of Scheme
Quantum Long Term Equity Value Fund

An Open Ended Equity Scheme following a Value Investment Strategy
• Long term capital appreciation

• Invests primarily in equity and equity related securities of companies in S&P BSE 200 index.
Quantum Long Term Equity Value Fund
Investors understand that their principal will be at Moderate Risk

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Note: Risk is represented as:
(BLUE) investors understand that their principal will be at low risk (YELLOW) investors understand that their principal will be at medium risk (BROWN) investors understand that their principal will be at high risk

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – to read scheme specific risk factors.

Above article is authored by Quantum.

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