|Indian stock markets have corrected by almost 10% in the last month or so. Nifty has lost more than 1600 points from its all-time high and is trading at 16985 whereas Sensex has lost more than 5000 points from its all-time high and is trading at 57011. It is for the first time that Indian markets have corrected by this magnitude since the start of the bull run in Apr 2020. The broader market has gone through much worse carnage wherein stocks have fallen by more than 25-30%. Investors who have entered the market during the last four to five months are witnessing considerable losses in their portfolios.|
So, is it time to sell off your positions or hold on to them? I would say, this is the opportune time to start adding to your positions. Wiser people have said, when others are greedy, be fearful and when others are fearful, be greedy, though it’s easier said than done. Most of us find it difficult to cope up with the losses and tend to avoid investing when the markets are going through corrections.
Have we ever thought about why most of us sell off our investments during market corrections? Is it because we need the money or is there any other reason(s)?We all must have taken a ride on the roller coaster; when it goes up we feel excited but feel scared when it goes down. It’s an emotion of fear that the human brain is not trained to handle very effectively.
Our mind has one basic instinct to perform; to enable our body to survive. When we come across fear, initially the mind tries to overcome it but if it continues or the magnitude of the fear increases, our mind will try to remove the cause of fear.
That’s exactly what happens when we go through the market corrections. As anything going down creates a sense of scare and feeling of fear, initially we try to cope with it saying it’s just a minor correction and things would return to normal. But as correction deepens and market voices spread further negativity, our fear factor(losing more money) and associated pain increase exponentially and that is the time when our mind finds it extremely difficult to cope up and will drive us to remove the cause of fear by selling off our investments.
Once we have sold our investments and booked, otherwise, notional losses, we feel a sigh of relief. We no longer get affected by listening to all the negative voices as we have removed the cause of fear of losing more money.
So had we not seen the television or listened to the negative voices of so-called experts during such corrections and held on to our conviction, we would have avoided distress selling and booking losses. Capital market carnage during Mar-Apr 2020 and ongoing correction over the last one month or so are classic examples of this. It is very important to understand that market corrections are temporary but growth is permanent. Market corrections are always followed by astounding returns. The best phase of the Indian stock market (Apr 2003 till Dec2007) has given 596% returns in four and a half years despite having gone through several corrections en route. The graph shows it all.
The fall in the market is attributable to a new covid variant, omicron, reversal of low-interest rate cycle in the light of higher inflation, and withdrawal of some foreign money from Indian stock markets. In my opinion, markets have just got latched on to these excuses to correct themselves from overbought positions, as there is nothing adverse on the economic front. India is poised for a high growth rate in foreseeable future, due to the following factors
1. Demonetisation and GST have integrated the Indian economy as one nationalised economy as compared to state-wise piecemeal and fractured economies five to seven years back.
2. Networking of resources with a nationalised economy by having AADHAR, bank account for all, broadband internet connectivity, mobile, and road network. This networking helps the Government to implement policy decisions very quickly. A recent example is the corona vaccination of 138 crores of the Indian population in approx 6-8 months.
3. Production linked incentives(PLI) offered by the Government of India to various sectors to promote manufacturing.Lowest corporate taxation(approx 15%) in the world for newly commissioned manufacturing units. PLI and lowest Corporate taxation would encourage foreigners to create alternate supply chains in India.
4. Recovery in the earnings growth of Corporate India. The share of Corporate profit in our GDP today stands at approx 2.1% as compared to 8% during the previous bull run from 2003-07.GDP is slated to grow at 9.5% during the current financial year as estimated by RBI and 8.5% as announced by IMF. India is the fastest growing economy in the world today.
5. Significant increase in tax revenues over the last nine months of the current FY. GST collection was at Rs 1.3 lakh crores for the month of November 21, second highest ever since its implementation.
1. All previous corrections look like a lost opportunity; Ongoing correction is no different, although it feels this time it’s different.
2. The fall in the market is primarily attributed to the expected increase in the interest rates due to higher inflation by central banks all over the world. The rise in inflation is a validation of strong growth and an increase in interest rates is unlikely to stall the ongoing bull run. A classic example is the 2003-07 bull run; despite the increase in interest rates in 2004, the markets kept on going higher for the next three years.
3. Market corrections are temporary; growth is permanent; Hold on to your investments until financial goal(s) is achieved. Switch yourself off from all market voices and avoid looking at your portfolio too often.
4. No one knows when the market will correct, how much it will correct and how long it will take to recover; but what matters is time spent in the market rather than trying to time the market. 90% of the gains in Sensex in the last 39 years have come only during 90 best days.
Need to talk more about this or any other issue related to personal finance? Please feel free to call or book a no-charge consultation with me on this link(https://calendly.com/rakeshgoyal). Confidentiality is assured.