Time to build long-term portfolio

The short-term trend continues to be volatile, the time has come for investors to go back to the basics of investing.

What aided the rally in last couple of years , of course, was the relentless fund flows from global investors who now have fewer exciting markets besides India.

It was the same investment community which hammered the stocks though there was also enough support from the local traders who had built positions beyond their capabilities. As a result, the super profits of 2007 disappeared in a matter of two trading sessions.

Though local mutual funds and institutional investors did their shopping, it couldn't stem the negative pressures on the market.

With foreign institutional investors (FIIs) still preferring to book profits and keeping away from Dalal Street, one wonders whether the equity story has lost its steam.

The worrying factor in the market is the global market mood which has come under pressure in the light of the US recessionary conditions.

While global liquidity scenario is far from comforting, Indian equity is likely to enjoy its share of limelight as the Indian corporate sector has managed to maintain its growth momentum. As fund managers have been repeatedly stating, there is not much change on the Indian corporate front.

Though a few sectors like auto and technology have failed to fire on all cylinders, the story has been intact with many others like power, infrastructure and energy.

In fact, the government has decided to substantially increase its spend on infrastructure projects under the 11th plan and this would have a spiraling effect on various other sectors such as cement, steel and power.

And sectors like banking and financial services, key drivers of economic growth, are expected to maintain their growth story though the increasing competition could put pressure on the margins.

Having said that, the time has come for investors to run a marathon rather than a sprint race as a fund manager of a leading mutual fund house puts it. Equity is all about long term and those who chase short-term gains should also be prepared for short-term pains.

However, there is little to worry for those who have the patience to wait for the next 3-5 years. In fact, those who maintain comfortable liquidity are the ones who will be able to take advantage of market corrections as was proved during the previous week.

If 2007 was any indication, the market has provided buying opportunities at regular intervals and all it requires is patience. While timing the market may be a challenging task, you can surely pick up your shopping list of fundamentally good companies every time the market shows signs of selling pressures.

As last week has shown, stocks which can peak to unrealistic levels on bull support can also reach unrealistic levels when operations turn desperate.

You may not exactly achieve bottom fishing, but it (corrections) gives plenty of opportunity to build a long term portfolio.

extracts from E.T