What to do in current Equity Market Conditions?
Markets are down and volatile since mid January this year after a bumper calendar year 2017. The Major Reasons/Factor for this are ;
1. Markets typically price 1-2 years forwards company earnings and due to higher liquidity i.e more funds getting invested into Equity markets, markets have outpaced company earnings in 2017 and hence a correction was due and is a healthy correction.
2. Before markets come out from correction phase as explained in 1 above, crude prices have started increasing and Rupee has started getting depreciated. Both of this are threatening Government of India’s Forex Reserves and Current Account Deficit (CAD) control. CAD deficit lead to higher inflation and it may lead to increase in Interest rate.
3. Trade war between China and US and fear of it getting escalated to global trade war.
4. Upcoming Elections in 4 states and followed by May 2019 General Elections are also keeping Markets Nervous.
Among all above challenging factors that are keeping markets low, Nervous and volatile, positive factor is the first quarter of Financial Year 2018-19 show remarkable improvement in companies’ earnings. Albeit not for all the companies but most companies have started recovering from Demonatisation and GST impacts and are on the path of recovery. Previous quarter GDP growth was also very good indicating revival in economy.
So overall this correction, nervousness and Volatility are like a stop/pause in India’s growth Journey. So you may have question – What should I do as investor as my returns are either poor or negative ? Should I continue to Invest ? or Withdraw from Markets ? Lets answer one by one ;
1. What you should do as an Investor ? Market Linked investments returns are like cricket run rates. The way each over do not produce equal runs, market do not generate equal returns each year. There could be a good year like 2017 and not so good/bad year like 2018.
Lets see most worst bear phases of Indian equity markets and what happened after worst year(s)
Year |
Worst Performance |
What Happened after |
1996 |
Sensex dropped by 40% in 4 years |
In next 1 year sensex grown by 115% |
2000 |
Sensex dropped by 56% in 1.5 years |
In next 2.5 years Sensex grown by 138% |
2008 |
Sensex Dropped by 61% in 1 yea |
In next 1.5 year sensex grown by 157% |
2010 |
Sensex dropped by 28% in a 1 year |
In next 3 years Sensex grown by 96% |
Learning from above is equity markets are never grown linearly and growth was always zig-zag (i.e Volatile) and this volatility does pose risk and nervousness amongst investors and especially to those who are investing in Equity Markets for the first time.
But you need NOT to focus on what market returns are in the short periods but focus on your goals which are 5-10-15-20 years away and as you can see from above table it will give you good returns over your period of time. So don’t worry for this kind of volatility, have faith in our Process and seat relax.
2. Should I continue to Invest? : Another learning from above table depicting historical behaviour of Sensex as representative of Equity Market is, if you have Long Term (Atleast 5 year and above) money this is the ideal time to add on your investments as this will spruce up your over all returns from your portfolio.
3. Should I withdraw my Investments? If your child fall down while walking, would you stop her from further walking? No na the same way your investments will have good year as well as bad years but withdrawing while markest are down in panic would hurt your financial health badly. So question of withdrawal doesn’t arise unless you need money for one of your goal for which you invested.
4. Should I stop my SIP ? Absolutely Not as this is the ideal time to invest as explained in 2 above so don’t stop your SIPs and infact if your could enhance the same, don’t hesitate in doing so.
Here is wishing happy Investing Journey to you and your family.