India’s 2014 General Election results are almost out, and the Narendra Modi led BJP is all set to form the next government. There is euphoria in the air, and at no other place is it seen better than the stock market.
Amidst this, here are five quick rules I believe you can follow as you invest in a Modi-fied India that looks promising (at least on paper!). The broader idea to still tread with caution instead of throwing your sense and sensibility to the wind.
Here are those five quick rules…
- If you have been sitting on the sidelines for the past five years, and itching to surf the high tide now, don’t start at the top of the tide by investing in stocks that are on a momentum (like real estate, banking, and infra). There’s a chance that you will drown again if you start at the top of the tide!
- In real life, things don’t change as fast as the stock market may lead you to believe. So be careful of the kind of businesses you are looking to get into and don’t go by what the stock prices are doing. A complex economy like India won’t change in a year or two, however good the governance may be.
- FIIs seem to be rediscovering their love for Indian stocks following their faith in the new government. This is what their latest inflows suggest. Don’t take cues from FIIs and their stock trades. They have always been fair weather friends and may leave out of the exit doors before you can even notice and react.
- Remember Graham when he said that in the short run, the market is a voting machine but in the long run it is a weighing machine. So avoid investing in stocks like you vote (emotionally). Instead, invest only after weighing the quality of businesses you intend to invest in.
- If you own good quality stocks and want to book profits after last few months’ rally or today’s, don’t! Think in terms of the wealth these can help you create over the next 15-20 years, instead of short term profits you have earned from them in recent times. In fact, if you are young, you have to have a high allocation to equities, and for the next 15-20 years.
Finally, one bonus rule for today – Avoid watching election results on a business channel. 🙂