I have been going through a whole lot of research reports from sell-side brokers about their view on the markets for 2012. Of course, everyone is bullish on Indian equities. Various theories, plots and circumstances have been analysed and the happy conclusion is that buying Indian equities is good for the investor. Broadly, everyone seems to feel that the worst got over as soon as the calendar year changed from 2011 to 2012. I never knew that a mere date made so much impact on stocks. If I were to make a list of companies with buy recommendations, it would extend to over 100 stocks. It leaves us confused as to which stock to buy.

Let us clear some clutter from our desks. If 2012 is going to be a year where the Sensex is going to trade in a range between (or below) 15,000 and 18,000, it is a fantastic opportunity for a 20 per cent return from equities. Since there is no consensus on direct stocks, the best way to cash in on the lower valuations is buy the index when it is close to 15,000 and then wait for it to hit 18,000 or thereabouts. This helps us to avoid the risk in stock picking. And the way to buy the index is to buy the ETFs that are available on the secondary markets. The key is that you make just one trade in the year. There is no question of an SIP or averaging. If the index does not go near 15,000, then we have missed the opportunity, and would have to be satisfied with a return of around eight per cent, that the liquid funds would give us.

This year may offer some great bargains when the markets fall, enabling one to pick up some high quality stocks at reasonable prices. In a weak market, all stocks would fall, but quality stocks may not fall as much as the broad market does. For example, when our markets are trading at a profit-earning (P/E) ratio of around 14 or 15, stocks like HUL are trading at close to 40 P/E!

The key is to keep aside a sum that you think you could risk investing in equities. When the index nears 15,000, buy ETFs on the Sensex or Nifty and wait till the index nears 18,000. At those levels, just sell, irrespective of what the market mood is.

Buying bonds could another option as it offer around 12 to 13 per cent return. One interesting possibility in the bonds is that if the interest rates fall by two per cent, we could sell the bonds in the secondary markets at a profit and have a total return that would be close to sixteen or seventeen percent. Of course, this assumes that you are able to sell the bonds in the secondary markets.

So maybe, there is some plan you could keep and execute. If the markets do not touch 15,000, then you miss getting invested. And if the markets keep going up and give some crazy returns, you miss the gains. If the market touches 15,000 and then keeps sinking lower and lower, there is a real loss. In such a condition, should one sell and get out? If I buy an ETF at around 15,000, I would not mind holding on for a couple of years. And if the market falls goes near 12,000, I would double my positions by selling some other asset. I am assuming that nothing new develops that makes corporate profits go out of the window.

(The author is an independent investment adviser)