Be Greedy When Others Are Fearful

Market Correction - Opportunity or Adversity?

It looks like someone just pressed the Time machine button and has taken us back to pre Modi times. It is indeed not a good feeling as all that you might have earned in stock market over past 2 years has probably vanished by now.

Nifty 50 has corrected by 22.5% from its all-time high level 8,996 it touched in month of March 2015. Uncertain global growth outlook, currency crisis, commodity prices crashing, Chinese economic slowdown, disappointing earnings for Indian companies, increasing bank NPA etc. seemingly endless list are all the possible reasons to drag down the market.

Only when you take a long hard look at history, this is nothing new. Stock markets go through different phases time and again, and offer investors rare opportunities like the current one to participate in a structural long-term bull market. While all of us (including the rest of the world) seem to agree that long term fundamentals of Indian markets are robust, current market correction should be viewed with optimism and used as an opportunity rather than a reason to fear and redeem or switch monies to other seemingly safer asset classes.

Current times reminds one of Warren Buffet’s famous quote and it is also very apt in current markets: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

On the face of it, looks like a huge Adversity.

What sense do we make out of current stock markets ?

Earnings growth is still weak. The perception that India is a beneficiary of the crash in commodity prices is very hard to validate because in the past six quarters, Nifty earnings and revenues have not gone anywhere. This however is beginning to play out already as the margins & profits have improved primarily on account of input cost being lower.

Dalal Street has been witnessing a bloodbath over the past few weeks. As we all know, there is always a cause and effect. Some of the key reasons driving down the markets are;

Global equities seem to be in deep trouble. This is correct and is also an opportunity for us over a medium to longer term as global growth capital will eventually get reallocated to India sensing relatively superior growth.

Another complication is liquidity.

Liquidity - both global and domestic - is a function of confidence. If you and I become apprehensive about circumstances, our willingness to trade, to invest, to lend will reduce and that is how liquidity dries up. We feel that there may be short term pain but will be an advantage India in longer term as Indian Growth comes out higher than other countries and global capital flows find way back to India. Domestic flows have so far been robust. As SIP movement in MFs remains strong, continued liquidity will help markets recover faster.

Uncertain growth outlook for developed economies.

Developed economies struggling to get their economies out of a deflationary situation. Again, advantage India in the longer term.

Continue believing in Long Term India growth story

However we should not be too perturbed with the market correction as “dark clouds are always followed by shining sun”. Equities have proved time and again that it is one of the most attractive asset classes in long run and markets now seem to be giving a good opportunity to do so for the longer-term with a good margin of safety. Currently, the markets are valued at close to long-term average price-to-earnings (PE) multiple and we feel that a slow and gradual upswing in the Indian domestic market would make it a compounding market over the next three-to-five years. At a 7 per cent plus GDP growth rate (new series), India is still among the fastest growing economies in the world; so there's some reason to cheer. The markets may see some volatility during the year, driven by news, both external and domestic however strategies like Systematic Investment Plans works beautifully during such times and fetch investors superior risk adjusted returns