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The stock market has already sky rocketed to record levels and all the analysts and

forecasters are painting a rosy picture for the future. The bulls are on the rampage
and the analysts, who only a few months back painted doomsday for the Indian
economy, are now gleefully exhorting the investors to pour more and more money
into the stock market. Well I dont disagree that long term fundamentals of the
Indian economy is fairly positive and to most extent the current euphoria which is
based on the long term fundamental might not be misplaced, but still the run up
has been too sudden. At this uncture the investors in general and the retail
investors in particular need to be fairly cautious about their investments.
The fundamental principal of prudent investment is to maintain a diversi!ed
portfolio of di"erent !nancial instruments. The obective of a diversi!ed portfolio is
to minimi#e the overall risk because of the underperformance of one asset class.
$arious options that are available in front of an investor are
%omestic e&uities
'old
%ebt instruments
(eal )state
*oreign e&uities
*ixed income deposits and securities.
+istorically, even in times of !nancial distress and crisis at least one of the !nancial
instruments outperforms the market while the other instruments might languish
because of the macro,economic or other fundamental reasons. -ost the .//0
!nancial crisis gold gained favor with the investors as it was considered a safe asset
as compared to the rest of the !nancial instruments. -eople who had invested
heavily in stocks during the haydays of .//1,.//0 got completely wiped out post
the !nancial meltdown. The smart investors however would have maintained a well
diversi!ed portfolio and would have simply re,adusted the allocation based on the
prevailing market conditions.
In Indian context, the stock market crisis of .//2 and .//0 should act as good
reminders to the investors to not go overboard based on the prevailing euphoria.
3ne should stick to the fundamentals and keep a well diversi!ed portfolio, albeit
with dynamic rebalancing techni&ues to allocate based on the prevailing economic
condition.
In the context of the aforementioned topic I would strongly suggest that the
investors should still invest in debt products. The current interest rate scenario and
future predictions about interest rate revision o"er promising prospects for the debt
instruments. In my next writing I am going to cover the basics of the debt
instruments and also the necessary criteria to identify the winner products.

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