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The Market Is Smarter Than Any Individual (This article by Jaydeep Kashikar has been featured on moneycontrol.com) Most financial newspapers, magazines, television channels, and analysts were seen recommending ‘caution’ for investors anticipating a correction since 9000 levels. The sensex since then has zip zap zoomed past 10000 and 11000 levels forcing all those who anticipated correction to hide their faces in a corner. Those investors who tried to time the market, awaiting correction are a bunch of paranoid investors; totally confused whether to wait further or invest now. Then when is the real correction going to happen? If someone tells you, that correction is round the corner, it’s surely not a great advice as it is everybody’s guess now. What must a domestic investor look at? The common news doing the rounds now days are: - Liquidity is immense and that’s pushing the correction phase ahead - Mutual Funds are sitting on huge piles of cash of around Rs. 10,0000 to Rs 15,000 crore collected in NFOs - All this money is being pumped in the markets and even small dip in sensex is being seized by mutual funds to deploy the huge cash collected. So this provides downside cushion for the market, and may limit or delay the correction For the domestic investor, the market simply gets riskier, and moves out of reach for those who like to buy cheap. The fortunate few are in the market already. The paranoid majority is standing out, sometimes regretting a missed opportunity. It would be a pity if we allow the markets to pass us by, without considering a limited and graded allocation to equity. That does not need market timing. - Though this liquidity exists, corporate results remain the key. A reversal of trend in the robust corporate results QoQ will pull down the markets by maybe 10-15%. The major risks for corporate results are, increase in interest rates and higher crude oil prices - Indian economy is poised to sustain a GDP growth rate of 7% plus over the next 10 years principally on the back of rising domestic consumption and accelerating spending on infrastructure development - Expect corporate earnings to grow at around 15% p.a. over the next 3-5 years. Over the long term, it is observed that stock market returns tend to broadly mirror the trend in the growth of corporate earnings - The three big investment themes over the next 5 years will be domestic consumption (banking, auto), infrastructure development (cement, materials) and outsourcing (pharma, auto components and software.) The beauty about Indian growth is that all three sectors are kicking in at the same time - Also the biggest difference between India and most of the other emerging economies is the low dependence on exports, which accounts for approximately 12% of GDP All said and done, we all accept that currently Indian markets are quoting at premium and the correction should creep in. India v/s Rest of the World
The moral of the table ‘India v/s Rest of the World’, above is: don’t try to time the corrections. Once again I repeat: Market is smarter than investors. And believe in the Incredible India story that this rally is a ‘long term secular bull run’. There is much more to mint in this market in next 10 years. Don’t be restless. To be sure, nothing goes up in a straight line. Violent corrections are an integral part of major bull runs and a shakeout in emerging markets may be overdue. But it’s important not to lose sight of the primary trend through all the noise. These markets, including India, are in midst of a powerful rally driven by fundamental change. Such currents don’t end because markets are no longer cheap. P/E ratios get very stretched at the peak of a bull market and emerging markets aren’t at that point yet. What do you get when you try to fidget with your portfolio by selling in anticipation of correction and aiming to buy at lower levels by investing the same funds? First Loss: You pay 0.25% STT on the Redemption amount Second Loss: You pay 2.25% Entry Load when you re-enter So, one thing is sure: Your 2.50% Loss And if your investment has not yet completed 1 year… Third Loss: 10% Short Term Capital Gain Tax on the appreciation After bearing these Assured Losses if markets go down you are lucky, but the fall should be sharp to cover your above losses & dip much lower so that you can buy and make gain out of the whole issue. And what are the risks of trying to do the same? First Risk: You might wait & wait to catch the bottom and miss it and market bounces back sharply without you investing at lower levels Second risk: You sold. You paid STT & STCG Tax. And markets didn’t correct at all. Sensex makes headlines in next 2 months of crossing much higher peaks. What do you do then? Lose your happiness for nothing? So, try to learn the most difficult lessons of equity markets which all agree but very few obey. "Ignore short term fluctuations and think Long Term" "Markets are smarter than any individuals" "Invest regularly to strengthen your portfolio" "Buy on every dip without fail; do not try to catch the bottom" So, if you have understood my message, I would also like to show you the flip side…
Now you would ask me, what to do if our market starts falling! My own strategy would be of buying at every 3% fall in market because I won't like to miss even the smallest falls. I am least bothered if sensex falls further after I invest because neither me nor anyone will know how deep would the correction be. But I know one thing for sure it will bounce back, maybe in 1 week or may be after 1 year. Patience pays. I am sure, you must be exhausted reading this extensive Gyan, but I would like to reiterate one thing here - You need not worry on whether Equity Mutual Funds will make money for you or not. Every time when you have investible funds do ask us and get names of 2-3 funds which are recommended strongly by us at that moment and have a portfolio of consistent out performers. |
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