Dr. Sanjiv Agarwal
On one hand where inflation is not coming under control and on the other, economic slowdown, globally as well as domestically, resulting in curb on income streams, it becomes imperative for people to work out for some additional source of income to either bridge the gap or earn more to continue to live the life as usual. This calls for some extra sources of income over and above regular sources.
Where to invest the available surplus so as to beat inflation poses as a major challenge because of twin factors – one tax cost and two inflation impact. Investing in fixed income securities does not provide any cushion against inflation as its returns are fixed as is the redemption. If such instruments are redeemable at premium to the issue price, then it may provide some cover. Also, income or return from fixed income securities are generally liable to income tax and such a levy brings the post tax returns even lower. Effectively, one should look at the net yield (net of rupee depreciation and tax liability) while deciding to invest.
Investing in securities with growth prospects could make sense, more so where the growth in market prices outpace the inflationary trend. But this may not be that easy as thought of. Investing in equities is full of market risk, requires lot of information to take decision, is time sensitive and also requires skill to identify such investible stocks. Even experts do not do so always right.
At times, it may be wise to invest in blue chip companies or industry leaders as such companies will outperform even when the industry sentiment is low. They may provide low but stable and consistent returns. Also, when the market recovers, they are likely to appreciate faster. Their negotiation power, brand equity, low cost of funds and better cash flows enable them to maximize on capacity, efficiency and productivity.
It is also important to do some own research rather than to rely on tips of brokerages/ consultants. While their tips could give you some hint, it would be advisable to do some homework as the money is yours. This may give you some goods scrips for the long term. Creation of a good portfolio is a combination of your skills, goals and ability to identify and invest timely. It is also important to revisit your portfolio regularly as no stock should be permanent in the portfolio. Only a vigilent investor succeeds.