Around dinner time, personal finance discussions often lead to the question: Is it the right time to invest? India’s equity markets have performed poorly over the last year, as the selloff driven by conflict in West Asia and rising energy prices has unsettled many. Still, some may view the downturn as an opportunity to build long-term wealth.
To determine if the time is right for you, assess your readiness. The central point is that investing at the right time is not just about market conditions or having sufficient funds, but also about being mentally prepared to take advantage of current circumstances.
Your personal situation
Before making an investment, first review your available funds. Most financial advisors recommend always having an emergency fund, typically covering at least six months of expenses. Prioritise keeping this in a high-yield savings account. During crises, inflation risks increase as goods and services face supply disruptions, so it’s wise to maintain an extra cushion for a few months.
Another important factor is outstanding loans. If you have high credit card balances or personal loans for consumption, focus on paying those off first. Paying interest rates of 12-15% does not make sense when you can instead free up future cash flows. Saving on interest is a guaranteed return—no one can promise investment returns, but you can always benefit from eliminating high-cost loans. Make it your priority to close all short-term, high-interest debts.
The right time
Once you have an emergency fund and have repaid high-interest loans, you are better positioned to invest your future income. Confidence in your earning capacity shapes your willingness to take calculated risks and build long-term wealth. Being financially prepared supports a positive mindset for investing.
After ensuring you are personally ready, consider market valuations. This discussion focuses on equity assets, where a decrease in share prices often signals potential investment opportunities. Recent analysis indicates that the price-earnings multiple for Nifty 50 companies is below its 10-year historical average, making equities more attractive. Thus, the argument is that if you are financially and mentally prepared and equity valuations are low, it may be an opportune time to invest, especially amid temporary factors such as geopolitical tensions.
Follow the money
Despite the attractiveness of Indian equities, foreign investors are withdrawing capital from them. While you may be in a position to get started on your investment journey or seize the opportunity amid the broad-based selloff, you may want to step back and observe the actions of influential investors. Foreign portfolio investors find other equity asset classes more attractive than India's equity market. At the same time, geopolitical tensions lead to higher dollar-denominated interest rates. In such a situation, foreigners' risk appetite tends to decline as they earn high interest rates on US-dollar-denominated Treasury assets.
Even in India, wealthy individuals diversify their assets, often prioritising capital protection by holding substantial amounts in fixed-income instruments. At the same time, they reinvest risk-free capital from interest or dividends when equities are attractively valued. The main argument is that being informed about these investment patterns and consulting with your advisor helps you choose the right time to invest, rather than acting on impulse or ignoring crucial factors.