There is bad news and good news. The bad news is that there is no good news and the good news is that the bad news won’t last forever. News is flooded with negativism, be it the draconian policies of Donald Trump or the Rupee flirting with an all-time low that has resulted in exodus of money from emerging markets. Also, sanctions imposed by Trump on Iran which produces over 5% of the world crude, has resulted in a sharp rise in oil price globally.
When the elephants dance, it is the grass that suffers. That’s exactly what is happening to us and other emerging markets, while China and America play the ‘who blinks first’ game over trade war. Our economy is getting trampled in the short run. Also, valuations were very high, market just wanted one reason to fall and it got many…
Now the good news, market is on sale. Valuations are mouth-watering and opportunity has knocked again after a long time. Mid-cap has corrected in excess of 25% and heavyweights too have fallen. The best time to invest is when everyone else is selling and is running around in panic like headless chickens. The most money is made when you invest during the bad times and I guess it’s now. This is the time when SIP’s will do best simply by buying more units at lower price and averaging the cost. Lumpsum investments into equity is also highly recommended now. I am not saying that the pain is over – the market may witness more headwinds and returns may be dim for a few more quarters, but the market moves on fundamentals and nothing really has changed in the long run. Corporate earnings will revive sooner or later and so will the economy.
Now the Irony… when the market was expensive and valuations were absurd, every investor wanted a bite of equity and now that market is so cheap/attractive, investors are weary of investing. It’s like having Gold at half the price but no buyers. Until yesterday the pundits and who’s who of the market were flaunting our economy as the fastest growing, having the largest infrastructure spending and the youngest demography in the world with massive consumption story. Has all this changed overnight? Can a country striding with the fastest growth story come to a sudden end?
The answer to all this is a resounding NO. What we are experiencing is volatility and not loss. Loss is notional. Markets correct ever so often and always eventually make new highs. Never forget this. Even the 2008 market collapse – the worst in recent times – is testament to this. Sensex from a high of 21000 points in January 2008, collapsed to a low of 8000 points in March 2009. At the time, every market guru predicted that it would take many years to bounce back, possibly even a decade to recover from what they termed ‘Complete and utter Devastation of the world’s financial markets’. The Sensex went all the way up to 38,000 this year i.e. a return of almost 480% in just 10 yrs. This fall is nothing as compared to 2008. It’s not even half as bad!
Let us remind ourselves that we are long term investors and returns in the long run has always been lucrative. Media thrives on negativity and you will be confronted with a lot of bad news now but that doesn’t mean you sell your investments or stop your SIPs which will do more harm than good. So put away your TV remote and understand that it’s no different this time either – the market will always correct itself and mature investors will not just stay invested but will invest more in equity now.
Having said all this, please note that no matter how high or low the markets, never tinker around with your asset allocation because that is what actually helps your portfolio sail through even during the most challenging times.