A CAVEAT IN FESTIVE CELEBRATIONS

[Dr. Sanjiv Agarwal]

The government today seems to be on the back foot as it has failed to check inflation on a continuous basis, fuel prices have risen beyond imagination in past two years and it is not able to concentrate on reforms, given the political developments and host of corruption scandals which have weakened its functioning and decision making.

As an annual ritual, all of us are in the festive season, celebration mood and investment mode for next few days as we celebrate diwali but there is a caution. The diwali season this time comes in the backdrop of continuous economic slowdown, higher interest rates (bigger EMI’s), unabated inflation and almost stagnant incomes.  But that should not really deter the festive celebrations. Despite this, we should celebrate, spend and invest, but of course, smartly, wisely and intelligently.

In last few days, stock markets have been erratic with investors being taken for a ride and investors not making profits. Which way it will move now is also a million dollar question. Nevertheless, investments should not and will not stop. One ought to know how to combat the risks and then 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 shaky in the wake of political developments  and one need to be prepared (or not take investment decisions) to face market challenges (which could be only temporary). These challenges will not only be to investments, wealth, billion and real estate investments but even to jobs or businesses. All this requires one basic element, hope and we may certainly have better times. While investing, what is most important is patience - to hold on to current investment and sustain the present down trend. It also calls for greater courage to enter the market at current levels as one gets the investment products cheaper in the buyer's market. Still, one should scout for good scrips based on   earnings growth, promoters record and sectoral preferences. Notwithstanding the market conditions, strong companies will continue to perform better and reward their investors.  taxmanagementindia.com

It may be advisable for investors to hold on to existing investment, particularly in blue chip and PSU stocks. One can also try to rebalance the portfolio and shed the weak investments and shift to companies with better prospects, returns and good corporate governance. Investors should be careful in buying from market as low price or significant price correction alone may not indicate that investment is good.

Infact, with interest rates moving up and EMI on loans going up, it would be wise to opt for pre-payment if one has got surplus liquidity. One gets twin benefits in form of reduction of principal amount and reducing high interest & cash flow burden. It is also a good opportunity to profitably use the cash, otherwise lying idle. One should opt for projects which offer immediate or near term possession, so as have a shorter or no gestation period so that returns get improved.  

The festival of Diwali and bullion investments go hand-in-hand. Invest in pure gold or silver, if looking from pure investment view point. Prices are not likely to fall too much but be firm and there is hope for upward movement only in long term. Inflation and interest is going to hit the forthcoming festive demand also. This time, even discounts and freebies may not help boost the demand as inflation and rising interest rate would spoil the game and adversely affect the sales this diwali season.

Coming to festival discount schemes and offer, 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. Customs should, therefore, trade off between buying an expensive product with EMI’s or lump-sum payment at a discount. The damage from higher interest rates could be mitigated by reducing the tenure of loan. This applies to all housing, durable, consumer and personal loans. Let’s celebrate this festive season by investing and spending wisely.

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