Should you invest in stocks?

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Let's look at the three key factors that are driving the markets in 2021 first:

  • Covid-19 vaccine:

    What was hoped for in 2020 has come true in 2021. India has started rolling out vaccines like other countries. Investors hope this signals better times ahead. Some economic data also suggests positive signs. But is the economy's engine really booming back into life?

  • Quarterly results:

    Company profits touched an all-time high in the July-September 2020 quarter, as per CRISIL. Many companies also reported strong results in the October-December 2020 quarter, as per a LiveMint report. But are the stock prices in tune with the earnings potential?

  • FII flows:

    Foreign investors are continuing to invest a lot of money in the Indian markets. In fact, India received the highest FII flows in 2020 amongst all emerging markets. But they turned sellers earlier in January. Post budget 2021, FII inflows picked up pace again. Question is, will the inflow continue?

As you can see, these three factors can be a mixed bag. It's all about investor expectations and if these expectations will be met.

So given such a situation, how should you invest? Let's have a look:

Scenario 1 - If you are a first-time investor:

'Buy low, sell high' – that's the stock market mantra. If the stock markets are a high, should you wait? The answer is no.

One, each stock has its own trend. Look for stocks that are available at a cheaper rate. For this, you may need to look at what is called 'PE' or 'Price to Earnings ratio'. It helps you compare the prices of different company stocks and helps you select companies that earn higher profits for the same amount of money.

Second, who is to say that the bull trend won't continue for a few months? This is why experts suggest that long-term investors should invest in small amounts every month. You can place an order to buy a fixed amount of stocks every month through a Stock SIP order. This way, you can invest at different price points and not worry about market volatility.

Scenario 2 - If you want to invest more money:

The Sensex touched 52,000 in one week and then fell to 49,000-levels within days. So it's natural to want to wait and watch.

If you are a long-term investor, then an SIP in the stocks you are interested in may seem a better option. That was, you can avoid worrying about the market ups and downs.

But if you are looking to invest for a shorter period of time, then it's best if you wait for corrections. Understand that even a bull run will have days when the market falls. That would be your point of entry. It's also better to look at stock-specific trends.

Scenario 3 - If you want to book profits:

Warren Buffet says: "Investing is like watching paint dry or grass grows. If you need excitement, go to Las Vegas." After all, timing the market is not an exact science.

Many use technical indicators like Day-Moving Averages (DMAs), Head & Shoulder patterns, and others to try and predict in the short-term. So select the stocks in your portfolio that you want to sell and look at what the technical indicators have to say.

Last words

If you are still unsure of what to do, look for professional help. Invest indirectly in stocks through Fund managers. They are in this business and understand the market better.

The purpose of this content is to provide information about industry trends and news of general interest of our customers, potential customers and other professionals. While every attempt is made to ensure the accuracy of the information provided, we do not guarantee the accuracy of the information. ABSLI recommend that these general views should be cross-verified and reaffirmed before being used for personal financial planning purpose. The recipients of this material should rely on their own investigations. The past performance is not necessarily an indicative of the future performance.
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