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Investing & Risk Management Insights by Sidhavelayutham, Founder & CEO of Alice Blue
Bangalore (Karnataka) [India], September 25: In today’s dynamic financial landscape, the age-old adage holds true: “Higher returns come with higher risks.” While equity markets offer the potential for substantial returns, they are not without their inherent risks. As investors, it is crucial to acknowledge the concept of equity risk premium when navigating the world of investments. [...]
Bangalore (Karnataka) [India], September 25: In today’s dynamic financial landscape, the age-old adage holds true: “Higher returns come with higher risks.” While equity markets offer the potential for substantial returns, they are not without their inherent risks. As investors, it is crucial to acknowledge the concept of equity risk premium when navigating the world of investments. Volatile and unpredictable events like the 2008 global financial crisis, the COVID-19 pandemic, and the recent Russia-Ukraine conflict underscore the need for robust risk management strategies to safeguard portfolio returns.
In the realm of investment, prioritizing risk management should precede the pursuit of return maximization. Every investor grapples with two primary forms of risk exposure: market risk and business risk. Market risk is rooted in macroeconomic factors, such as fluctuations in interest rates, geopolitical developments, or economic downturns. Foreign Institutional Investors (FIIs), for instance, closely monitor these indicators and may adjust their investments accordingly, either on a global or national scale.
Conversely, business risk pertains to risks specific to a company. It encompasses factors like intensifying industry competition, regulatory hurdles, supply chain disruptions, or operational inefficiencies. For instance, the automotive industry’s recent experience during the festive season illustrated how a shortage of semiconductor supply impacted car production despite high customer demand. Today, preparations for the ongoing festive season indicate that 95% of dealers have bolstered their inventories to meet this year’s expected demand.
