It is natural to be worried about equity investments whenever the market correction occurs. Slowing economy is seen as the most influential factor triggering the market fall right now. But this is not the first time that the markets are correcting nor is it the first time that the economy is slowing down. Agreed this time around, the damage could be larger than the previous occasions merely because of the size of the economy, however the recovery will also be much swifter than it has happened in the previous instances. It does not take much to reverse the sentiments, as you know by now. Only one or two positive announcements and suddenly things start falling in place as if nothing happened. The best part of the recent correction is that it is perceived to be a policy misstep on behalf of the current government that has accentuated it. Why we say it’s the best part is because the policy missteps can be amended and when steps are taken in the right direction it can lead to speedy recovery. We believe the government will take all the necessary steps and rise to the occasion and support the flagging economy growth. Good economics after all is good politics.
Time and again markets have surprised investors with its ability to recover in the longer run. Presently, pessimism is occupying investors mind, and it’s but natural. Such pessimism, history suggests does not last long and can be used to build portfolio. Markets have rewarded those who have shown the conviction in tougher times.
I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”
- Warren Buffett
The above line is most apt now. Do not ignore it, else regret will be the only option later.
If we consider all the negatives that have impacted the market, it does look like most of the negatives are factored in by the markets and it is only a matter of time that the markets form a base and start recovering.
The markets worldwide have factored in a slowing global economy. The Indian markets have discounted risks emanating from poor corporate governance companies, recent ratings downgrades, sluggish results and recent taxes levied.
How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case. ”
- Robert G. Allen
In such testing times when we are facing both price and time correction in Indian markets every investor should remember to keep an eye on the mid to long-term potential of the markets. In down markets as well as up, it's important that investors exhibit discipline and stick to their long-term strategy. Sticking to the plan and following the long-term strategy is often most difficult in weak markets, however it is markets like these that can create extremely lucrative opportunities. And we want to instil this confidence back in you to hang on and increase the equity weightage in your investments now.
The four most dangerous words in investing are: "this time it's different. ”
- Sir John Templeton
Time and again investors miss the bus thinking ‘this time it’s different’ but do believe us it has always been the same way. Our 34 years’ experience and historical data all prove the same.
Every year you will find a peculiar theme dominating the market moods. If it was goldilocks situation (moderate economic growth characterised by lower inflation and market friendly monetary policy) in FY18 and trade war and interest rate tightening in FY19 it definitely is the economic growth story that is dominating the market moods in FY20. As soon as the GDP growth data starts bottoming out the equity prices can be expected to pop up. It is safe to say that we are close to making a bottom in near term and long-term investors can use this opportunity to generate alpha for their portfolios. Start accumulating now and hunt value for better future portfolio returns.
Here is a question for you: " Would it not be futile to not take a long position when it is almost clear that the downside is limited and the upside unlimited"?
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