The sentiment has started improving and the markets are going up. This is the time investors shed their fear and opt for equities. Equities over longer periods have always returned handsome returns to the investors. Equities are the best investment class for capital appreciation, dividends and hedge against inflation. The over optimism and the over confidence we see today can lead to investors turning greedy and ready to buy any stock.
There are hounds waiting to capitalise on the greedy investors. At this time it is important to take some lessons from history. In every bull market it is common to hear "This time it is different". However over time we have seen that investors who turn greedy are soon parted with their money. Different themes and stories are woven to sell dreams to investors.
Remember the technology boom in 1999/2000. There was this story of the new economy and the death of the bricks and mortar. Investors were willing to pay any price to get a piece of the action. The stocks of technology companies reached dizzy heights only to fall leading to wide spread losses for the investors.
Rewind back to 2005 to 2008. We had the power sector, real estate and the infrastructure boom. The stocks of these sectors were the favourites of the investors and they were willing to pay excessively high valuations for them. Not only had we a flood of IPO's in this sector but even mutual funds came out with new fund offerings in these sectors. Those investors who blindly plunged in are still nursing their losses.
Today also the same story is being repeated under a different name. The modus operandi remains the same. Strike the chord with what is hot in the markets and commands investor fancy. There are very high expectations from our prime minister Narendra Modi. It is assumed that jobs would be provided, infrastructure would get a fillip and the economy would bounce back. This would lead to more power generation capacities. Thus the power and the infrastructure sectors have become the hot sectors of the market. The sleeping tiger is about to be unleashed.
There is nothing wrong in one having a bullish view on these sectors and in the long run investments in these sectors should pay off. Fund managers should be buying these stocks in their current schemes.
However people get more excited by the mystery of the unknown and some novelty. So mutual funds will come out with innovative ways using different themes like the tiger has awaken, invest in the new India, NAMO stocks, the Gujarat edge, etc. This would be all done to market the same theme of infrastructure investing using a different name.
Remember the tech boom. You just needed to add a dot com to the name of the company and the valuations changed. Similar gimmicks are being applied today and some funds have already hit the market. More will follow. Investors need to use abundant caution and not be swayed away by such innovative marketing.
Multiple schemes have been responsible for confusing the investors. Be prepared with more of this confusion but use your common sense and not be carried away. It is the same every time : greedy investors get taken for a ride by smart marketing techniques. "This time it is different" It is only the method to make you part with your money that is different.
