How to light up your investment portfolio this Diwali

When considering new investments during the festival of lights, use the opportunity for a review and remember to set aside cash for coming corrections

As Indians around the world gather to celebrate Diwali today, many will be keeping their eyes on the clock for the most auspicious time of the year to invest in asset classes ranging from equities to property and gold.

“Diwali brings happiness, colour and success to our lives and is the festival of growth and prosperity. So, an investment at Diwali is believed to be highly auspicious,” says Shruti Sayed, 35, an Indian resident of Dubai.

Ms Sayed invested in two India-based mutual funds last Diwali, the DSP Equal Nifty 50 and the Aditya Birla Digital India fund, which have returned more than 50 per cent over the past year.

That performance is in line with markets worldwide, which have reported oversized rallies driven by trillions of stimulus dollars, vaccine-linked post-coronavirus recoveries and an optimistic outlook among savings-rich investors.

Compared with Diwali in 2020, this year represents the highest percentage returns since the 2008 financial crisis.

“Indian markets have done very well in the recent past and are expected to exceed expectations in coming months as well,” Ms Sayed says.

In addition to mutual funds, Ms Sayed is planning to buy a villa in Jumeirah Golf Estates this year and will also be considering established cryptocurrencies during the auspicious Diwali ritual investment window known as muhurat trading. The special trading session, which is determined astrologically, is scheduled for between 6.15pm and 7.15pm on November 4.

Stock traders traditionally begin a new accounting year at this time and retail investors usually make at least a few investments in honour of Lakshmi, the Hindu deity of wealth and prosperity.

The trend extends to non-resident Indians (NRIs). Key stock indices typically end higher after the muhurat session – since 2008, the BSE Sensex has risen every year except for three occasions, according to Bloomberg data – although they have usually ended the following session in the red.

Manohar Lahori, chairman of the Palmon Group, a manufacturing, retail and logistics company in the Jebel Ali Free Zone, and a director of the Dubai International Finance Centre-based Manrre Logistics Fund, says he stays away from volume investments in his home market because of currency fluctuations.

“I am a growth investor and trade actively on the US stock market; it is part of my daily routine. I would do the same on Diwali as it is an auspicious day for Indians,” he says.

Goal-based investing

Auspices aside, experts say investors should have a strategy and make any stock or asset purchases in line with their financial goals, rather than simply making a one-off outlay.

“Investments should never just be restricted to Diwali or special occasions, but should be made regularly – whether this is by studying the market yourself or with a personal or robo-adviser,” says Jagdish Golani, a senior financial planning consultant at Nexus Insurance Brokers.

Just as believers clean and paint their homes before Diwali to welcome wealth and prosperity deity Lakshmi, they should also review their portfolios before the festival, says Sharad Nair, managing director of Apex Advisers DMCC, an investment adviser to ultra-high-net-worth individuals across the region.

“Overall, good financial practice involves reviewing your investment portfolio at least four times a year — that means looking at each asset and how it has performed, but there’s no need to make significant changes each time," Mr Nair says. "Only consider encashing investments that have not performed according to expectations or are too difficult to monitor.”

Similarly, any stock or investment tips should be treated with caution. “I constantly see people talk about stock markets at social gatherings and some self-crowned market gurus offering recommendations on a single stock. Go ahead and invest in it – but only after you have examined its fundamentals and cross-checked your portfolio for diversification,” he says.

Spreading your investment across different pots applies equally to international markets, something expatriates often overlook because of their ties to their home countries.

Ullas Rao, assistant professor of finance at the Edinburgh Business School at Heriot-Watt University Dubai, suggests considering property and stocks on the Dubai Financial Market and Abu Dhabi Exchange bourses and elsewhere. “With the boom in digitisation, it is also easy to now invest not only in the home country, but also in global markets, enabling international diversification of the portfolio to generate optimum returns with manageable risk,” he says.

Looking ahead, Mr Nair advises investors who are considering Indian and other equity markets to be prepared for short- and medium-term volatility.

“Markets have touched levels that have never been dreamt of by most investors. The long-term outlook is positive; however, there exists quite a significant possibility at this stage for the markets to go through some interim volatility,” he says.

Dollar-cost averaging

Investors could use volatility to average out their stock and fund purchases over time to lower their average price, Mr Golani says.

“One of the best strategies to remain calm and stay invested during periods of volatility is to treat investment contributions like a recurring subscription,” he says.

“So, if you are asking yourself whether now is a good time to buy stocks, the answer is simple: keep investing regularly, so long as you do so for the long-term and are making regular contributions across large-, mid- and small-cap stocks.”

The outlook for the next few weeks is strong and the Indian market is expected to sustain its recent bullish momentum, Mr Golani says. He urges investors to consider strong companies in the pharmaceutical, e-commerce and digital transformation sectors.

The BSE Sensex, which has 30 stocks, is up 28 per cent this year while the broader NSE Nifty is trading at 30 per cent over the start of the year, driven by financials, industrials, utilities and consumer discretionary stocks.

The Sensex shed 5 per cent in the last 10 days of the month after hitting a peak of 62,245 on October 19. In the last week of October, the Sensex fell 1,514.69 points, or 2.49 per cent, and the Nifty dropped 443.25 points, or 2.44 per cent, the biggest weekly decline in eight months.

Quote
So, if you are asking yourself whether now is a good time to buy stocks, the answer is simple: keep investing regularly, so long as you do so for the long-term and are making regular contributions across large-, mid- and small-cap stocks
Jagdish Golani, senior financial planning consultant at Nexus Insurance Brokers

In view of that performance, it would be prudent for investors to book partial profits and return to originally planned asset allocations, broker HDFC Securities says in a recent Diwali report accompanying a crop of 13 picks with a one-year time frame.

“After such a rise in markets, one does not know what triggers could ultimately take it down and for how long,” the broker says.

A number of “emerging negatives” have not received enough investor attention, including commodity price inflation, supply chain issues, a reversal of monetary stimulus, increasing investment rates worldwide, damage to lenders’ asset quality and slow job creation even as automation picks up pace, it says.

“Having said that, equity as an asset class will continue to do well in India,” the report says.

Public sector units continue to look strong after Air India’s return to Tata Sons, with further divestment progress evident on Bharat Petroleum Corporation Limited and Shipping Corporation of India.

Likewise, ICICI Securities, advises investors to focus on companies with strong earnings growth and visibility, as well as stable cash flows, return on equity and return on capital employed.

Common themes among reports from Indian brokers are banking and finance, property, capital goods and automotive stocks. Reports from Nomura and UBS, among other companies, have suggested that valuations are too expensive given risk-reward valuations, particularly when compared to peers such as China and Japan.

Property and gold

Diwali is also an auspicious time to buy property and gold while cryptocurrencies have drawn increasing interest in recent years.

Traditionally headline investors in India’s metropolitan areas, NRIs have instead been buying smaller-ticket investment properties in tier-two and tier-three cities around new industrial corridors that include lifestyle amenities such as club houses, golf clubs and swimming pools.

Meanwhile, gold has eased from highs earlier this year and remains attractive for mid- and long-term buyers, Mr Golani says. “As equity markets are at very high levels and any correction will only give it an upwards boost, the belief is that the dollar's strong momentum won't last long as rising crude oil prices may lead to a rise in global inflation, pushing demand for gold in the commodity market. Bitcoin remains a good alternative.”

Indians have a well-established love of gold and the country swaps the top spot with China for jewellery consumption. But Mr Nair recommends thinking about the logistics around the sentimental investment.

“Indians love gold as it is the only investment they can flaunt on their skin. It is commonly believed among Indians that gold touching your skin will give you increased confidence. Investors should continue to buy gold. However, keep it limited in the interest of storage and transport risks, especially across borders. Buying ETFs will save you the logistical nightmare while you continue to book growth profits,” he says.

Mr Nair is also bullish on cryptocurrencies, the recent Bitcoin rally notwithstanding. “Property developers and some shopkeepers are already accepting Bitcoin, so blockchain-led crypto is here to stay and will continue to improve human life. But since it is a largely unregulated market, it is critical to understand which currencies to avoid as the market has already had its fair share of scam cryptos.”

Finally, he advises keeping cash on hand to capitalise on any coming market corrections – this is where that portfolio review should come in handy.

“The momentum among business and consumers is very positive, hence we may not expect a serious correction along the lines of March 2020, but investors should expect and brace for interim volatility as result of profit-booking, market tightening and potentially negative news on some large capital stocks,” he says.

“It is highly recommended to keep some liquidity in hand to take advantage of the crisis.”

In other words, don’t spend all your money during muhurat trading.

Updated: November 4th 2021, 6:41 AM
EDITOR'S PICKS
NEWSLETTERS