2009 has already been a year of two halves - the first quarter marked by pessimism and the subsequent by optimism.
From an investor perspective, neither of these are desirable states to base an investment decision.
It is important to have your long-term goals, ability to take risk and requirements of liquidity at the top of the pecking order at all times. This should lead to a serious thought on the appropriate asset allocation.
If this is the framework guiding your investment and is coupled with profit booking when valuation levels get outlandish, the odds are to move in your favour to meet long-term and short-term financial goals.
We have looked at the patterns of monthly inflows and outflows from different categories of mutual fund products across the industry over a ten-year period. There is high degree of correlation between the inflows and the market trend as well as outflows and the market trend.
The magnitude of the former is significantly higher than the latter in a bullish phase while that is not the case in bearish phases.
This indicates two aspects:
• A sizeable cross-section of investors appear to get interested in equity only in the later stages of a bull market.
• A section of investors appear to take profits as equities move towards peak levels, probably to avoid negative effects of deep declines.
Outflows assume a larger dimension only when a downturn gets more protracted. We hope to publish a detailed analysis in the next month or two as information is now available from the Association of Mutual Funds of India for a ten-year period.
What has been indicated is only from a first-cut analysis of the numbers.
Even this points to optimism and pessimism playing a major role in the manner most investors execute plans to deploy their savings. This is not, in our view, appropriate for investors from a long-term perspective.
(T P Raman is Managing Director, Sundaram BNP Paribas Asset Management. The opinions expressed are his own)
Sources:-Ww.REuters.in
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