Benchmark Indices have endured torrid times in the recent past on the backdrop of heavy selling of domestic equities by Foreign Portfolio Investors/Foreign Institutional Investors. The sell-off by the foreign insvestors has been primarily due to the fears emnating from the spread of new variant of concern coupled with the US Federal Reserve’s signals to accelerate tapering of its asset purchase programme, overvaluation of domestic equities and possibly thrice interest rates hike in 2022.

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To be fair, this wasn’t the first time that retail investors experienced market wrath and learned some key lessons as follows:
 
We spoke to Rajiv Kapoor, Vice President at Trustline Securities on the key learnings from 2021, and 10 mistakes that investors must avoid as they invest in 2022:

Bond Yields matter
 
Bond yields in the US market have shot up from 0.535 per cent in June FY20 to 1.496 per cent now and accordingly, Indian bond yields have gone up from 5.759 per cent in August FY20 to 6.466 per cent as of now.

As risk heightened in equities, investors shunned equities for taking refuge in the safety of the debt instruments. So, remote US bond yields can have an impact on Indian stock prices.
 
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Avoid market driven by liquidity
 
Over the last one and half years, global Central Banks infused over a trillion of dollars into the financial ecosystem. Even though, India too alone infused close to $400 billion through fiscal and monetary measures into the financial system.

Naturally, money found its way into financial assets and thereby propels global equity indices to record highs. Amid scorching bull run in the market at that time, valuations hardly matter, and many investors/traders enjoyed this rally.

But their party spoiled when Central banks signal to squeeze excess liquidity systematically from the system coupled with a slowdown in earnings growth in the latest quarters, suddenly expensive valuations became a hot topic in the Dalaal Street and a matter of grave concern as well.
 
Gold glitters but has its limits
 
The period between November 2019 and August 2020 was the golden period for gold as an asset class and it outperformed many other known asset classes and delivered 48 per cent returns this period.

It is not often that you see such annualized returns from yellow metal in succession. After fortunes of gold peaked in August-20 at the spot price of Rs 56,341.74, it fell 11 per cent from those levels.

Gold does best when there is uncertainty, not when there is growing optimism. So, the big learning is to limit gold to 10-15 per cent of the portfolio but not to overexposure in it.
 
Exposure to Global assets
 
Over the last few years, one of the best performing asset classes has been global assets. The Indian investors accessed its global assets through the international Fund of Funds as well as direct access.

These international FOFs have given the best returns over a couple of years compared to other asset classes. From a diversification perspective, global assets should be included in the portfolio.
 
Debt and Debt Funds no more hedge for uncertainty
 
It may not be a prudent presumption that investing in debt instruments/funds is - a safe haven.

Default risk in debt funds became real in the last few years with cases like IL&FS, DHFL & Franklin Templeton which froze 6 of its debt funds due to poor liquidity.

So, investors have to be very cautious while investing in these debt funds/instruments and this year just manifested these risks.
 
Valuations still hold ground
 
After a stellar 20-month rally benchmark indices have reached an all-time high and delivered around 120-125 per cent from the lows of April 2020. The market cap to GDP ratio is at 112 per cent against the historical average of 76% and it looks a little bit high.

The Nifty50 index is trading at 22 times one-year forward earnings, which is well above its historical average. The slowdown in earnings growth, expensive valuation is difficult to justify and consequently, Indian markets have already corrected 8-9 per cent from their all-time highs in October month to now.
 
Top 10 mistakes to be avoided
 
With the advent of new investors in the stock markets amid the covid19 restrictions. Consequently, the number of investors count has increased and crossed 50 million recently.

Some key mistakes that could be avoided by the novice investors/traders:
 
1) First and foremost mistake is the absence of even basic knowledge about the stock markets and associated terminology and its working /functioning etc.
 
2) Neither doing any adequate research nor consulting any financial advisors or experts while buying any financial assets.
 
3) Avoiding diversification of the portfolio by investing in particular sectors/stocks/asset classes as per the recommendation of business TV news anchors, family or friends etc. Nutshell, putting all the eggs in one basket.
 
4) Listening and then reacting to unsolicited news or events without properly authenticating and understanding it.
 
5) Do not follow risk management and trade without a Stop-loss strategy.
 
6) Doing trade frequently and end up paying substantial trading fees, commission or brokerage to brokers - Indulging in Overtrading.    
 
7) Temptation to buy cheap/penny stock and intends to sell at a high price. This fiasco land them trapped into fundamentally weak stocks and loses capital. Not investing in large-cap debt-free equality stocks and considering them as expensive ones.
 
8) While investing/trading, focusing solely on minting money in a very short-term period and without considering micro and macro factors.
 
9) Earning decent or substantial/ profits in a particular stock(s) then not booking fully/partially profits.
 
10) Borrowing on margin or take debt to invest in the stock market or use funds earmarked for specific purposes like marriage, children education and medical expense etc.

Always remember that research patience and education mixed with rich experience are the right ingredients that can help traders/investors accumulate wealth in the long-term period.

So, investment decisions should be taken as per financial goals, time horizon and not purely on tactical market movements or sentiments.

Withering of fiscal stimulus & monetary incentives and amid raising interest rates regime only fundamentally strong businesses will thrive so, the prudent strategy would be to bet on them.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)