 "Keep calm and invest on")
Hardly two weeks into 2016 and markets are, once again, preparing for the end of the world. Crude oil is at a 12-year low, China depreciated its currency by a huge 0.5%, North Korea tested a hydrogen bomb, Saudi Arabia and Iran are at loggerheads, and – in unrelated news – legendary musician David Bowie passed away. Britain’s benchmark equity index – the FTSE – had its worst start since 2000 and the Dow Jones its worst start ever. Expectedly, doomsday experts are calling for a huge market crash, perhaps even a repeat of 2008. The way things are going, even an alien landing might be predicted soon. With so much gloom and doom, here are two simple things to remember:
Big moves happen: 2015 was a tame year for the Nifty with a mere 16% fall from its all-time closing high of 9000 in March to low of 7550 in Sept. Measured from high to low, the preceding years were far wilder. From 2010 to 2013, the Nifty remained trapped in a treacherous range of (broadly) 4500 and 6300 – often moving violently between these two levels. Gains in 2010 were reversed in 2011 and regained in 2012. When our current account crisis hit us in 2013, the Nifty fell by 13% in just over a month to 5285 in August 2013 and then rose 20% by December. 2014 was the year of optimism when Narendra Modi became the Prime Minister and the Nifty moved 43% (bottom to top). Most of this optimism vanished in 2015, as the Nifty fell 16% (top to bottom). Notice those climbs and falls? This is how stock markets operate – not just in India, but anywhere in the world. There are big moves up and there are big moves down. Even in the long bull market from 2003 to 2008, when the Sensex moved up seven times, there were plenty of major declines on the way. Each bear and bull market sees big moves up and down. These moves are near-impossible to predict by the best of experts.
Big moves happen: 2015 was a tame year for the Nifty with a mere 16% fall from its all-time closing high of 9000 in March to low of 7550 in Sept. Measured from high to low, the preceding years were far wilder. From 2010 to 2013, the Nifty remained trapped in a treacherous range of (broadly) 4500 and 6300 – often moving violently between these two levels. Gains in 2010 were reversed in 2011 and regained in 2012. When our current account crisis hit us in 2013, the Nifty fell by 13% in just over a month to 5285 in August 2013 and then rose 20% by December. 2014 was the year of optimism when Narendra Modi became the Prime Minister and the Nifty moved 43% (bottom to top). Most of this optimism vanished in 2015, as the Nifty fell 16% (top to bottom). Notice those climbs and falls? This is how stock markets operate – not just in India, but anywhere in the world. There are big moves up and there are big moves down. Even in the long bull market from 2003 to 2008, when the Sensex moved up seven times, there were plenty of major declines on the way. Each bear and bull market sees big moves up and down. These moves are near-impossible to predict by the best of experts.
Stay calm, stay focused: If you’re a trader, the violent moves in the market are brutal and frustrating. Your discipline will be tested and the least you can do is respect and maintain your stop-losses and stick to your trading system. If you’re lucky and have called it right, you might even benefit from big moves in the market. If you’re smart, you won’t let any of this go to your head. For retail investors, it helps to stay calm and ignore all the noise. Most of all, resist the temptation to react impulsively. There will be a lot of chatter, lot of talking heads on television channels calling for “opportunities”, and plenty of experts talking of gloom and doom. Ignore all of this. Focus on the priorities and objectives of your portfolio, and check if there is any substantial change in them. Consult your financial advisor to walk you through this. There’s enough data on record to show that over a 10, 15 and 20year time period, the Indian markets have delivered healthy returns – check an earlier post on this topic. Remain focused on these longer term goals and objectives. If you have to, you could consider increasing your investment in the stock markets through the chaos and turmoil. As Warren Buffett famously said “You want to be greedy when others are fearful. You want to be fearful when others are greedy.”
2016 has a long way to go and global events are still unfolding. In the wake of giants like China adjusting to a slowdown and the U.S.A. adjusting to an economic recovery, India is a mere bystander. And as the world’s largest economies flap their wings, this will cause waves in India.
Anupam Gupta is a Chartered Accountant and has worked in equity research since 2000, first as an analyst and now as a consultant.
He contributes to the Business Standard platform, Punditry, through his blog, Beyond Markets on markets & the economic horizons.
He tweets as @b50