Equity Market in India: Is It a Time of Greed or Fear?

Written by Akhelesh Vargab

With the opening of the economy after the epidemic, everything was back to normal in India. India’s GDP forecast was the highest in the world. But happiness did not last long as the Fed rate hike, consistent with the Ukraine-Russia war, created a double whammy for the market. With global markets falling by more than 1,000 points in a single day, led by the US Dow Jones, Indian markets could not remain immune. Dalal Street, which was already a bit shaky, moved south. Since the 17100 level, the Nifty has declined about 7.6% per fortnight.

For most investors, last year’s surge was broken. Well now the million dollar question is what next? To put it bluntly, crude oil prices have risen since the Russia-Ukraine war, which has exacerbated already high inflation. The impending tightening of the home rate by the US Fed and the RBI seems to have sunk. There has been a predictable pull of FIIs from India to the safe haven of the West. The value of the dollar has risen to the expected line which has put pressure on our rupee, causing the gap to widen further.

So, does this mean that it is better to start a bear cycle and get out of the market and have a certain income security? Does this mean that the story of Indian growth is now a myth? Well, it’s always easy to speculate about what’s going to happen, and it’s up to the crystal geysers to predict what’s going to happen in the future. For the time being, only deep neutral compression of information can be a true beacon that can serve as a guide.

Russia-Ukraine War: The Ukraine war has lasted longer than anyone imagined. Basically, the purpose of starting the war has failed. If the situation prevails, neither side will win. Due to the protracted nature of the war, NATO countries provide arms, money and, most importantly, moral support to Ukraine. At the same time, it has left the country devastated and uninhabitable. The war has pushed up fuel and gas prices, which has pushed up global inflation. As long as the war is within conventional limits, it has been discounted by the market. When the war is over, its effects will quickly cease, as has happened many times in the past. Some examples are: 1991 Gulf War 1, 1999 Kargil War, 2001 Twin Tower Invasion, 2003 Gulf War 2, etc .;

FED rate hike: The US Fed rate hike (read RBI rate hike) is being done to reduce the liquidity pumped by the US government during the slowdown in the Cowboys. It was a given that at some point the rate would increase. The market is correcting and will settle at a comfortable point from where it will drive up again. If the second and subsequent steps come in an organized manner, normal equity cyclical market movements will occur. The impact of the subsequent rate hike will be less because the people will adjust to its cause and effect as well as the end of the Ukraine war. After some time the reverse cycle will start because the growth will absorb the excess fluid.

Inflation:Inflation There are two aspects to money – demand-pool inflation and cost-push inflation. In the case of current inflation, the main factors include increasing liquidity, labor shortages and rising wages, disruption in the supply chain and rising fuel prices (due to the war). The latter can be controlled if the government gets its fuel consumption and tax policies properly. Moderate inflation is good for growth so the RBI is doing it right to keep it under control. This type of inflation will always be good for equities in the long run.

FII vs. DII:While FIIs are raising money, DIIs are consistently buying and have been able to prevent vertical declines. Thanks to the patience of an educated Indian investor, SIPs have not stopped. At times, FIIs have to return to the Indian market for obvious reasons. Their return will signal a ā€˜Vā€™ shaped rally that will not give retail investors time.

Despite the head wind in the last two quarters; Indian companies have performed above average. At the current level of PE below 20, Nifty and Sensex are really very attractive. Record levels of GST collection have been seen as a result of gradual leakage in the GST collection system. Bank NPAs are mostly cleared and they are ready to lend (with good due diligence in place) etc.

So the macro level outlook will unfold as the tide turns, we as investors need to remember and adhere to the basics of proper investment.

Investors are often advised by their advisors to keep the following in mind when investing in equities:

* Invest in equities according to your unique risk profile.

* The minimum horizon for investing in equity should be five years.

* Re-balance each portfolio as the market moves upwards or downwards again aligning with one’s risk profile and horizon.

When an investor violates the above rules, panic and fear make the decision that leads to panic sale.

That being said, what should an investor do now in the current situation? Simply put, relax, don’t panic and believe in the story of Indian growth and the cyclical nature of the equity market. If the equity market goes down – it is bound to come up. Thus the Sensex and Nifty which were at 100 at one time were above 62200 and 18600 respectively.

Every down trend market will be an opportunity for insights and it needs to be exploited wisely now.

(Akhelesh Varghese is an Indian Army veteran, MBA Finance, and an independent advisor to Becky Taxation and Investment LLP. The opinions expressed do not reflect the official position or policy of Personal and Financial Express Online. Reproduction of this material is prohibited without permission).

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