Once bitten, first-time investors stay off stock markets

Those who lost money in the turmoil have little faith left in their financial planners, and prefer to switch funds to bank FDs, says Vidyalaxmi

 MARKET meltdown has some curious after-effects. One of them is investors' lack of belief in their financial planners' advice. The 50% fall in the Sensex since its January peaks has prompted investors to shy away from the stock markets. Even as the financial planners assure equities are the best assets for long-term investments, people are actually shifting loyalties to fixed deposits of PSU banks or they are simply sitting on liquid cash.
    "Cautious investors have obviously panicked and gone into a shell. The sudden flight from relatively safe liquid funds to fixed deposits is a classic example of panic," says Swapnil Pawar, financial advisor & director, Park Financial Advisors.
    Admits Suresh Sadagopan of Ladder 7 Financial Advisories: "No one wants to come near equities. There was a time when my clients would just walk on my advice. Now, 30-40% may still pay heed to my guidance, but 60% of them are sitting on the fence." Many first-time investors, who had entered the market at 18,000-19,000 levels, have taken serious hit after the sharp corrections since January. They are in a hurry to lower their equity exposure and don't want to look at stock for another two to three years.
    "The experienced investors, who have stayed invested in the stock market since 1990s, have seen different cycles. Still, they feel that they have reached a saturation point as far as investments in the stock market are concerned. So they aren't looking at any fresh investments in the equities. Despite benefiting from long-term holdings in equity, even experienced investors have slowed down on stock buying," says Mr Pawar.
    "Similarly, although no fixed maturity plan has defaulted, people are still wary of FMPs. The optimistic investors, on the other hand, have turned cautious. They are already reducing their exposure to equity. Less than 5% of our investor base is looking to capitalise by buying at current discounted levels," he adds.
    "If an investor enters the market at 10,000 levels he will definitely make windfall gains over a period of time. But investors are unable to sense the current market meltdown as an investment opportunity. When we advise clients that equity is the best way for long-term investments, they agree with the math and the logic we offer. But when it comes to committing money to this turbulent and topsy-turvy market, people are very hesitant," Mr Sadagopan adds.
    The problem is that very few investors have the maturity to understand that asset classes go through ups and downs. A common investor psychology is that investors want to make the most of the bull-run, but want to exit before the bears break loose. Even as most investors are stopping SIPs now, they shouldn't pull their money out as it would be suicidal. Investors, in fact, would have seen reasonable erosion in their capital.
    Under current circumstances, it's advisable that people invest in a staggered manner over the next six months. Although the equity market looks very choppy, experts suggest it's still viable for long-term investments. As Kartik Varma, a Delhi-based certified financial planner and co-founder of I Trust, advises his clients, "You should look at the stock markets only if you are looking at a four to five years' time horizon. A time-frame of one to two years is a strict no-no in existing turbulent conditions."
    vidyalaxmi.v@timesgroup.com