Happy days are here again? | Value Research The markets are close to its all time highs and so are equity funds. Stocks have clearly shaken off the decline the suffered last year. Stocks are volatile and need time to give returns. This learning comes free for now
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Happy days are here again?

The markets are close to its all time highs and so are equity funds. Stocks have clearly shaken off the decline the suffered last year. Stocks are volatile and need time to give returns. This learning comes free for now

One of the unique things about the state of mind of investors in stocks or mutual funds nowadays is that there is a huge diversity in their happiness levels. Of course, those who chase short term opportunities over days or weeks are always in some part of a manic-depressive cycle but nowadays, even long-term investors' moods have an impressive diversity. On the face of it, happy days are here again. Stocks have clearly shaken off the decline the suffered in the middle of last year. The markets are at or near all time highs and so are equity mutual funds. Currently, almost 95 per cent of equity mutual funds are either at an all time high or within two or three per cent of such a high.

In fact except for a handful of perpetual dullards (whom no one any longer invests in any way), there are no equity funds that haven't recovered the losses that the markets suffered a year ago. In fact, many funds have done substantially better. In the period from June 14, 2006, which was the lowest point that the major indices touched in recent times, the Sensex and the Nifty have both gained around 63 per cent. During this period, as many as 70 equity mutual funds gained more than the markets did. Of course, a larger number, 95, performed worse than the markets. Still, as I pointed out earlier, the fact remains that even these have earned substantial returns over this period and as I said earlier, there aren't too many funds which aren't at all time highs.

All in all, there are hardly any investors who are today sitting on losses, no matter when they've invested. Based on analysis done by Value Research, of the Rs 110,000 crore of investors' money that is being managed by diversified equity mutual funds, around 94 per cent is in profits. So that's that isn't it? Happy times are here again and everyone should be smiling and congratulating each other? Not quite. The fact remains that people invest in equity mutual funds to make money, not just to avoid losses. A great deal of money flowed into equity funds in the first half of 2006. This was the time of mega NFOs like the Rs 5,790 crore Reliance Equity and the Rs 2,850 crore SBI Bluechip. Based on the heady atmosphere of those days, I think much of this money was not level-headed long-term investment. Instead, it flowed in expecting quick and substantial returns.

Instead what investors got was a big collapse of almost 30 per cent from May 10 to June 14. After a few month's toil, their investments reached new highs in February, only to fall back again. So while newspapers and TV are happy to talk about new highs, this isn't bringing any great excitement to those who rushed into the markets expecting to double their money in a year's time. Sure they are relieved at having not actually lost their shirts, but that's about it.

However I think this has been a good experience everyone. This is the way equity investment is. Stocks are volatile and need time to give returns. Most investors who come in at the peak of a bull run actually end up having to make losses in exchange for receiving this valuable educational experience. Those who have learnt it for free should actually consider themselves pretty lucky.
The inter bank call rate dipped to 0.10 per cent on the back of surplus liquidity in the system While the bond yields did pose a modest recovery market sentiment remained cautious.



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