Is this a good time to invest?

The mood is sombre. Dark clouds have gathered on the horizon. The future looks bleak. No, this is not a new novel, just your typical market analyst commentary. The experts are concurring these days that the scenario is one of gloom and doom. In fact, there is wide choice of options to worry about, so pick the one you want to start with - inflation , fiscal deficit, oil prices, elections, industrial growth, corporate earnings, and many more.

All the homilies - buy when the market dips, buy good companies, buy value, buy growth - have disappeared from analyst verbiage . Warren Buffett is forgotten . Is this ’gloom and doom’ scenario for real?

The recent performances of all portfolios seem to reinforce this outlook. Stock prices have been battered in recent weeks, reflecting this new perception of reality. Some of the largest companies have been battered by the recent fall

Even mutual funds have not been spared, with most funds falling faster than the indices. Analysts have been revising Sensex targets to 12,500 or even as low as 10,500. What’s an investor to do? Run for cover, or brave the tide? Buying in this market would be a brave decision indeed. Or perhaps it would be foolish ?

Let us try to make sense of the current worries. Are they as overwhelming as feared, or will they just be footnotes on the pages of history within a year or two?

Most of the current worries are short-term in nature. Worries about a global slowdown have already started to weigh on commodity prices. And as infrastructure bottlenecks are resolved and additional supplies flow into the market, commodity prices look set to head downwards . Most commodity stocks have already corrected sharply from their respective peaks.

Countries dependent on commodities have also seen a sharp drop in their markets over the last two months, due to worries about global growth rates. Brazil’s Bovespa is down 20 percent and Australia’s All Ordinaries down 15 percent in just two months. Any cooling off of commodity prices will put India back on the growth track. This time around, this is likely to be one of the few markets offering growth opportunities as credit-induced growth seizes up in most other economies. The domestic growth potential and attractive valuations should put India back on the buy list over the next few months.

But isn’t that a long time? The analysts are predicting the worst, and it could happen immediately, they say. What should you do?

Investors should forget about analysts’ commentary, projections and targets. Their accuracy leaves much to be desired. Don’t forget, these were the same people foretelling index targets of 20,000 to 25,000 just six months ago. There are worries galore, of course. But they only explain why the Sensex is at 13,000, and not at 23,000. They tell us very little about where the markets will be next year.

So what advice should investors follow?

Don’t try to outguess the market. It has always been futile to try and guess market movements. And it’s impossible to pick the bottom or the top. Then, how does one invest? Or, (a common question nowadays), should one invest at all? Equity remains the best asset for long-term capital growth. Despite current worries , returns from the stock market will be linked to longterm growth in corporate profits, which will in turn depend on the growth and prospects of the economy.

If you believe that it will do well over the long term, then the corporate sector will follow suit and so will the stock prices. Though indices have fallen by 40 percent from the peak, the long-term prospects of the economy and the corporate sector are unlikely to have deteriorated to that extent. The demographic profile and infrastructure investment that analysts were raving about just six months ago are still in place. This decline thus gives long-term investors an excellent entry point.

Perhaps, like many investors, you are asking: should I buy now? If so, how much?

Do not decide on the quantum of investments based on current market sentiments. Draw up an asset allocation that is appropriate for your age and risk profile. Decide your equity investments based on your asset allocation model, not on levels of the Sensex or targets bandied about by your friends or analysts. That’s the smart way to invest. It will help you filter out the ’noise’ on TV, and focus your investments on your longterm goals.