Why Is It A Great Time To Invest?5 min read
Yes, the title does ooze out a sense of optimism, and it has been deliberately done so, to convey the right sentiments across the board.
Let’s be honest here, the situation in the stock markets does seem grim. But the thought which shouldn’t go away at any given instance is to stay disciplined throughout the journey till your goal is met. With stocks, it’s all about how hard you have worked to pick the quality stocks, and how firm you stay during the dips.
After all, this stock market reflects investors’ sentiments and it is no different this time, Nifty has already absorbed such dips successfully in the past and went on to make new highs in the future.
A Quick Rewind to 2018
when inflation was low and GDP Growth was declining (yes, we were already declining before the Covid pandemic hit us). Nifty had fallen 18% in September 2018 due to
- US-China Trade War
and some systemic issues like after-effects of
- demonetization
- fumbling GST
- a tumultuous financial system crippled down by bad loans
- a highly inefficient Insolvency & Bankruptcy Code back then (major irregularities of IBC has been ironed out now).
BUT, Nifty bounced back pretty soon.
Then Struck Covid-19
To everyone’s surprise, we were struck by Covid-19 in early 2020! But we managed to recover swiftly. Usually, the market does not lose more than 20% during a correction. If it goes beyond, it is considered the start of a contraction controlled by bears.
Note: This is not the case right now, Nifty has only corrected 10% oddly from its all-time high and is quite far from the level where bears firm their grip.
Let us take a recent example of correction, in the early stage of the Covid pandemic, when there was little to no information about the nature of the Virus or disease, and governments across the globe switched to the only response available back then, lockdowns. Yes, we have had a series of lockdowns, supply chains across the planet got disrupted, manufacturing units and offices got shut down, and migration of unmatched level-triggered soon after the announcement of lockdown happened in March 2020. To control the pandemic, governments took radical steps which were not just detrimental to the domestic health of the economy, but have had negative repercussions on the global economy too. Watching these nerve-wracking measures, Nifty witnessed a panic trigger sell-off and corrected 40% from its then high of 12430.
BUT, Nifty bounced back up
To provide much-needed support governments across the globe took many steps. Central Banks lowered interest rates to support the demand and to spurt the economic cycle once again. This low-interest rate policy of central banks is known as the Easy Money Policy because it is easy to borrow when interest rates are low. As a result, the Nifty surged 150% from its 2020 low of 7511 to 18604, the all-time high it made in Oct 2021.
This Is An Opportunity for Value Investors
And since then, Nifty is trading in the range of 18300 – 15600, Nifty hasn’t formed any high since Oct 2021 but has formed two lower lows since then, and a third seems to be in the making, which again is going to come up with many investing opportunities. This is exactly where the concept of “value Investing’ comes into play, where good quality stocks start trading at low valuations, not because they are bad but just because the majority of the participants are affected by fear and the collective rationality of the investors gets compromised, which in turn create opportunities for value investors.
So Wait, Why Is Nifty Correcting Right Now?
Coming back to our moot point of the cause of this current market decline. US Fed, BoE, PBoC, ECB, RBI, and every major central bank turned towards this tool of Easy Money Policy, where interest rates are lowered (in some cases even to 0 or negative). What happened next?
Spending increased, employment increased and the economic cycle came back to normalcy. But there is a cost to everything. Low-interest rates triggered uneven demand across the economy, a scenario where too much money chases the finite number of goods placed in the supply chain. This means inflation!
Now it’s not like inflation is all bad, it is a signal that demand is sufficient and the economy is growing, but too much inflation is a cause of worry as is the case right now. Central Banks across the globe unanimously now accept that the Easy Money Policy was going on for too long now which has led to a hyperinflation scenario. Remember, crude oil had already surged to $85/barrel before the Ukraine-Russia crisis.
The Bright Side
Thankfully now, all major central banks have started increasing their interest rates. Even RBI on the 4th of May ’22, in its off-cycle MPC meeting, decided to increase repo rates by 40 bps (0.4%) to 4.40%, which triggered a massive sell-off in the markets leading to the recent fall.
DII Activity Shows Hope Too
During the last two corrections since Oct 2021, DIIs have supported the stock market, along with the participation of retail investors who are pumped up. From FIIs & DII activity in the last 5 months, it becomes clear that FIIs are continuously selling whilst DIIs are buying. If we dig further, DIIs are overpowering FIIs. Gone are the days when FII activity was the sole governing factor of the market trend. We now have our trend makers now in the form of DIIs & robust retail investors.
This is a clear signal that Nifty as usual, will find its way up as a result of our deeply embedded belief in the growth of the Indian economy in general.
Time To Balance Your Portfolio
It is perhaps the time to balance your portfolio and look out for sectors that are gritty and ready to offer a new set of opportunities. Rise and fall are part of the investment journey, but the approach with which you operate during such time defines your portfolio returns.
There is nothing wrong with the stock market correction, but whether you are a trader or an investor, it is always good to stay cautioned, well informed, and never lose that tinge of optimism. Remember, Nifty is nothing but the reflection of the collective sentiments of the participants like us.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. This content is purely for information purpose only and in no way to be considered as advice or recommendation. Paytm Money Ltd SEBI Reg No. Broking – INZ000240532. NSE (90165), BSE(6707) Regd Office: 136, 1st Floor, Devika Tower, Nehru Place, Delhi – 110019.
