Dr. Sanjiv Agarwal

Come Diwali days and in India, we are  once again in the festive season and celebration mood and mode but with a caveat. This time the festive season comes in the backdrop of continuous economic gloom, higher interest rates (bigger EMI’s) and unabated inflation not only in India but world over. However, that should not deter the festive celebrations. Despite this, we must celebrate, spend and invest, but of course, smartly and intelligently.

 During October 2011 and earlier, stock markets have seen a roller coaster ride with investors being taken for a actual ride and investors losing billions of wealth. Which way it will move now is also a million dollar question. Nevertheless, savings and investments should not and will not stop. One should know how to combat the risks and invest in portions. While there is likelihood of no major good news from government or market or corporate side, it is evident that the coming months are likely to be only stormy and one need to take steps (or not take investment decisions) to face market challenges (which are only temporary). These challenges will not only be to investments, wealth, billion and real estate investments but even to jobs and interest payments.

The challenges can be faced but this requires one basic element, hope. If hope is to be believed, we will certainly have better times. Every one in the market believes so.  So what is most important is patience – to hold on to current investment and sustain the present storm. It also calls for greater courage to enter market at current levels as you get the investment products cheaper as when others are not takers, it becomes a buyer market. One can well scout for good scrips based on   earnings growth, promoters record and sectoral preferences. Notwithstanding the market conditions, strong companies will return to original levels or higher with a bang, soon after the recovery.  Given the present economic scenario, jobs are likely to get impacted in sectors like, financial services, telecommunication, financial services and big infrastructure projects.  One needs to hold on to current positions and avoid these sectors, so far as new entrants are concerned.

Investors should hold on to existing investments, particularly in quality companies   and PSU stocks including banking companies. One can also rebalance the portfolio, shed the weak investments and shift to companies with better prospects, returns and corporate governance. Investor should be careful in buying from secondary market as low price or recent significant price correction alone may not be indicative that such investment is good.

Infact, with interest rates moving up and EMI on loans going up and up, it would be wise to opt for pre-payment, if one has got surplus cash. One gets twin benefits by this in form of reduction of principal amount, reducing high interest cost and releasing cash flow burden. It is also a good opportunity to profitably use the cash, which may be otherwise lying idle. New home loans may be avoided for the time being, both form the view point of higher EMI and interest and likely weak real estate market leading to likely cheaper cost. One should opt for projects which offer immediate or near term possession to reap full benefits.

Diwali and bullion investments go together, atleast in our country. Invest in pure gold or silver, if looking from investment view point. Prices are likely to be firm and there is hope for upward movement in long term. Ornamental gold is diluted and has consumption value.

Coming to festival discount schemes and offers, it is advisable to opt for cash discount rather than going in for EMI, if you have cash to offer.  Shopping becomes economical if one goes on for availing realistic cash discount where the benefit is instant and tangible. In many cases, zero interest options are offered. Technically, there is nothing with zero interest costs and costs are hidden in pre- EMI or quality of product sold. Such schemes are so designed that the processing fee and pre EMI compensate for interest. One has to therefore, trade off between buying an expensive product with EMI’s or lump-sum payment at a discount, depending upon liquidity and discount offered.

It is up to us as consumers or investors to convert this festive season to our advantage by investing and spending wisely instead of crying over spilled milk.

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February 2024