Why investing amidst euphoria requires caution

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Express News Service

India is at the centre stage. The host of G20 (now G21 with the addition of the African Union) this year, the world’s attention is on the Global South. Prime Minister Narendra Modi spared no effort in putting forward the attractiveness of India as an investment and a travel destination.

The endless media coverage of the event should make you wonder if it means anything for your money. Two critical things matter to your investments. These include the future of interest rates and the future of corporate profits.

In the short term, such events have little impact on financial markets. There is a lot of positive media coverage of India. Much business done at the G20 Summit in New Delhi has long-term implications.The Delhi declaration talks about unlocking the growth potential through building physical and digital infrastructure across continents. The presence of multilateral agency chiefs like those of the World Bank and the International Monetary Fund meant that smaller countries could look forward to an efficient disbursement of capital for funding that growth.

The efficiencies unlocked due to the rapid expansion of the digital public infrastructure like the Unified Payment Interface or UPI in India and other similar initiatives in many other countries add to the global growth. Construction of cross-country trade routes through sea, road and rail can boost the global supply chain.

The world learnt a lesson on problems in the supply chain triggered by the war in Ukraine or trade wars between two nations. An efficient movement of capital goods and services can help countries control supplies and manage inflation. That directly links to future interest rates that matter to your money.
Companies using the digital public or physical infrastructure could potentially do more business and generate higher corporate profits.

As a new investor in the stock market, you may wonder if it is right to start investing, considering the euphoria. You may wonder if you should commit more money if you are already an investor. It may be a good idea to step back and take stock. Share prices in India are currently near a record high. The NSE Nifty is also a few points away from the 20,000 mark. While benchmark indices like the BSE Sensex and the NSE Nifty have moved 8% in 2023, there is a sharp run-up in the mid-cap and small-cap shares. Indices representing mid-cap and small-cap shares have jumped over 30% this year.

A few research notes suggest more upside in mid-cap and small-cap shares. If you can access quality research reports on companies or have a professional advisor to help you identify the right stocks, you can still invest in them. However, if you are new to investing, you must be careful. If you insist on investing in individual stocks, you must check the fundamentals like profit growth and outlook ahead. If you cannot assess that, you are better off making small monthly investments through systematic investing.

Index funds or exchange-traded funds are an excellent way to start. These allow you to take that first step in the investment world. When you test the waters here, you can move up to diversified equity funds, sectoral funds or direct equity investing.

Your financial advisor can help you make sense of the information. If you have one, you should make the most of those conversations. Focus on asking the right questions before deciding on asset allocation. Your hard-earned money needs direction from you. You can create wealth slowly. But, it is essential to read between the lines and take note of things that directly affect your money.

There is a lot of information put out to confuse you. It matters that you know the relevance of all of that. If you are not associated with the world of finance, you must keep in mind that any trend that pushes inflation higher is a warning sign. That could be persistently rising prices of goods and services. If the inflation trend is a flat plateau, it is time for your money to work for you.

Rajas Kelkar
(The author is editor-in-chief at www.moneyminute.in)