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The Extendables

There is lot happening in the stock market with streets coming alive n kicking with upbeat mood with buzz which is felt all over and big action amongst investors in domestic as well as foreign is seen. The market has clearly taken off the blocks and is out for what can be called as mother of all bull runs. This is one time when the investors tend to dump their caution thereby becoming complacent and become most greedy and break loose and chase returns as if there is no tomorrow ever. Although GDP has improved from 4.6% in 2013-14 to 5.7% in the first quarter of 2014-15.

 Even the commodity prices are falling globally to improve current account deficit and inflation numbers. The Brent crude oil prices have fallen by 32% from $112 during June to $85 in this Oct which will only help in bringing down India’s subsidy burden. After a long lull even the industrial production clocked 2.8%, and the wholesale price inflation and the consumer price inflation are gradually coming down. One will also have to take into the account the clouds of uncertainties hovering around European economy is too negative, and if the US increases interest rates offering better yields on debt securities which will be a shade safer option for FIIs. Also if the US Federal Reserve stops buying bonds there by drying up excessive global liquidity could trigger exodus of FIIs either ways.

The domestic investors have pumped in Rs 32,244 crore in equity mutual funds this year and the mood is upbeat and the sensex has climbed 25% this year even the FIIs have invested Rs83, 450 crores in equities. In such bullish times one must be careful about the exceptional gains in short time often camouflages years of poor performances. One of the common mistakes is that the investors enter at the near peak and panic at the first sign of the fall and start selling, although the Indian markets have risen very sharply since September 2013.

Now the NFOs and close-ended funds are on priority by the fund houses over the open-ended funds where the investor has got liberty of entering and existing anytime, so now the stress is on the closed-ended funds in which one can invest only during the new fund offer (NFO) period, so now the money is locked for the tenure of the fund, and here there is steady fee income. But still the open-ended funds are much chased one.

Everything that shines is not always gold and so one must balance their core of portfolio for the short, middle, and the long term, and the one of the best way is to choose those funds which have performed consistently well even during the bearish markets and also observe the returns of a stock over a complete market cycle.

Whenever the market starts rallying it is actually the best time to cleanup and restructures your portfolio, focusing on SIPs, specific sectors and mutual funds.

At good times the tendency of a person to become careless and recklessness creeps in and you tend to force into committing small mistakes which later on ends up in burning a big hole in your portfolio if the market cycle rebounds so one must be extra cautious because when the going gets easy you develop overconfidence that you have developed midas touch of a kind, whatever you touch becomes gold.

The continuous stellar performances are always to be planned and monitored judiciously, so the real test of stock picking ability are tested in the times when the markets are volatile and if you are in dual mind than the best solution to end the dilemma is to invest in the mutual funds One must try to understand the thin difference between investment and trading.

Also during the euphoria one must ensure so as not to lose sight of the fundamentals and valuations. One must also put a leash at borrowing to invest in the stock markets and see that those stocks which have given great returns in the past are not overvalued. So sticking to the basic principles will help you to avoid the bumpy road in the journey of your destination of becoming a successful investor.