Time to be a stock market investor not a trader

Last week after a five year long gap, I had a chance meeting with a friend who likes to describe himself as one who has seen five bear markets. Apart from the fact that his hair had grayed, there wasn't much change in his physical appearance. But in fact there had been a big change in his life.  From being a day trader and jobber operating out of an office at Rotunda Building at the Bombay Stock Exchange, he had turned an investor.
 
There is an old saying in the market that once a trader always a trader. Therefore it was a bit surprising to find he had made such a big change.  The reason was simple: the rise in the number of forces that drive the market has made life difficult for traders. It is difficult to predict the market on a daily basis. One may be right for the entire day but the last five minutes to one hour of trade can wipe out the entire gains of the day. If you don't have deep pockets you can no more survive in the market and therefore most of the old guard have turned or are turning to be an investors.

Traders who were once the pulse of the Indian market have already become extinct as they can't match the FIIs at buying and selling. There is also the factor of rising costs. With limited money in hand they can't take risks.

Expectations from the forthcoming budget include the hope that the current government will bring down taxes. Securities transaction tax (STT) when introduced in 2004 was reasonable, but over the period of time it has increased substantially. STT and stamp duty are the major costs. Everywhere in the world the market has been revived on two accounts. The first is tax support and second is pension money. If this supports comes from the government we may see a revival in the capital market. Currently STT in cash market is levied at the rate of 0.1 per cent on both the seller and the buyer. On derivatives, the tax is only levied on seller which ranges from 0.01 per cent to 0.125 per cent.

The rally of hope is clearly over and here on markets is waiting for action from the government before it takes off. Compared to the emerging market peers India is no more a cheap market. While everyone is optimistic and feel the best is yet to come they are cautiously waiting to see what the government does in administrative and policy reforms.  Reducing bureaucratic red tape, focus on increasing foreign direct investment (FDI) and improving infrastructure will be positive signals for investors.

High inflation, twin deficits, fiscal and current account and weakening currency continue to pose threats to Indian equities and therefore there aren't many goodies that the government may offer. The fact is it may not be a dream budget. The government will have to bite the bullet which may in near term may look harsh on the economy but in the long-run will be beneficial to the overall growth of the economy. In fact foreign investors are also waiting to see such action that will further boost confidence in the market.

Investors that have made money are already taking profit from the table as after a long time they have made decent money in the equity market. Players who have returned to the market due to the recent rally should guard their optimism as the market will not be a one way street. It is expected to remain good but to get the desired returns it will take time. In the current scenario sticking to fundamentally sound companies with strong balance sheet will be a good and a safe bet. However one thing is clear irrespective of outcome of the budget it's time to be an investors and not a speculator. Market in the long-run always rewards patience.