Keep CALM and INVEST On

Posted On Monday, Jun 20, 2022

Emotions are an essential part of what makes us human but when it comes to investing, emotions can either make or break your goals. Several investors allow their personal biases and emotions of fear and greed shroud their judgment during investing decisions.


During the market rally of 2021, when valuations were looking expensive, we saw widespread enthusiasm in investor sentiment bordering on greed. Today, for many investors, the euphoric sentiment of the equity rally of 2021 has been broken.


The equity market is undoubtedly experiencing a tough phase. The BSE Sensex tumbled southwards around 1,500 points in a single day on June 14, 2022, amid concerns over inflation numbers in the US touching a record 40-year high of 8.6% and above 7% in India. Equity mutual funds across categories have been deep in the red. The rising commodity prices and aggressive interest rate hikes have led to fear trumping greed.



Fig 1: Equity Markets Deep in the Red

Equity market is cyclical


Source: Economic Times as of Data as of Jun 15, 2022. Past performance may or may not be sustained in the future


Dealing with bad phases in the market has never been easy. But then so aren’t overcoming our emotions of fear and greed. The key question on everyone’s mind is what next? Is the scenario going to be doom, gloom, or boom?


Today on the occasion of International Yoga Day, find out how to control your emotions and decide whether it’s time to exercise restraint or should you be bold and take the plunge?



Balancing Emotions


While no one can predict the future, investing wisdom calls us to be fearful when markets are greedy and greedy when markets are fearful. Remember that fear and greed often come from a place of ignorance. At this juncture, it helps to be unbiased and take cognizance of the macroeconomic trends that have been shaping up in the market.





Valuations Look Favourable


In response to the interest rate hikes, FPI (Foreign Portfolio Investors) have been pulling out of Indian Equity markets. However, consistent DII and retail inflows have cushioned the fall.


Despite the headwinds, large listed companies have showcased resilience. Nifty and Sensex at current levels of PE below 20 are looking favourable.


Considering the markets are approaching fair value and earnings are continuing, the FII flows might return to the Indian Market and this would boost India’s growth potential over the long term.



Fig 2: Nifty 12 M P/E & P/B


Source: Nifty 1 Year Data as of May 31, 2022. Past performance may or may not be sustained in the future



How Do You Position Your Portfolio To Overcome The Influence Of Emotions?


1. Exercise discipline: We believe that the market fluctuations should continue for the next couple of quarters, therefore, you need to exercise patience. While you will get ample opportunities to use the market correction to your advantage, instead of deploying all the investment surplus in one shot, it would be the right time to stick to a disciplined approach to investing.


• Consider investing lump sums in a piecemeal manner. This would help you take a calculated risk and manage the risk better.


• Another way to exercise discipline and patience is by starting an SIP (Systematic Investment Plan). An SIP can often be the simplest way to help you resist the urge to pull out from the markets and stay on track on your financial journey. If you already have an SIP, avoid discontinuing or stopping your SIPs in the current market cycle. It would prove counterproductive and put brakes on your goals.


2. Go long term with a diversified equity portfolio: While no one has a crystal ball to predict the near-term market levels and the impact on your investments, it's usually within our control to ignore the overriding emotions of fear and greed and accept the market dynamics and rise to the opportunities it presents. The effect of inflation and interest rate hikes may not be consistent across all companies. Thus, it makes sense to build a diversified portfolio that could be geared for growth over the long term and offer better downside protection. Keep a minimum investing horizon for five years to build your growth block.


You can use the 70:15:15 ratio as part of the overarching 12-20-80 asset allocation strategy to rebalance and strengthen your equity block.



Fig 3: Building Your Growth Block Using Quantum’s 12-20-80 Proprietary Asset Allocation Strategy

Asset Allocation Strategy


Please note that the above is a suggested fund allocation and is not to be considered as an investment advice/recommendation.


It makes sense to add the Quantum Long Term Equity Value Fund which comprises of stocks at reasonable valuations and a lower leverage that will be less sensitive to the increases in the cost of capital and rate hikes than a portfolio with high PE multiples. You can additionally diversify with Quantum India ESG Equity Fund positioned for sustainable growth over the long term. Finally, diversify across different market cap and styles using Quantum Equity Fund of Funds.



Fig 4: Building Your Growth Block - Diversified Equity Basket

Sr. NoFundAllocationBenefit
Equity Fund 1Quantum Equity Fund of Funds 70%1 Fund = 5-10 well researched diversified Equity schemes
Equity Fund 2Quantum India ESG Equity Fund15%Shortlists funds based on environmental, social and governance parameters
Equity Fund 3Quantum Tax Saving Fund or Quantum Long Term Equity Value Fund 15%Follows value style lowering downside risks and helps achieve long term goals

Please note that the above is a suggested fund allocation and not to be considered as an investment advice/recommendation.



Fig 5: Overcoming Emotions With Sound Investment Principles

Overcoming emotions with sound investment principles


Instead of allowing the dominant market sentiment to influence your investment decisions, overcome your emotions with sound investment principles of evaluating your goals, staying disciplined and sticking to an asset allocation plan over the long term. Relax, do not panic, and believe in the Indian growth story and the long term growth prospects of the equity market.




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