Ignore the Noise and Stay Invested

The recent banking crisis in the US has led to heightened volatility in markets, with NIFTY 50 falling over 6.5% from its recent peak it made in Dec’22. While the markets globally have taken a hit over the past month or so, this is not the first time we have seen such a fall. There have been numerous such instances in the past where markets have fallen due to a global reason.

We have analysed the markets over the last 15 years and have observed that there have been 11 such instances where markets have fallen by over 5% due to global or local reasons. The below table shows such instances and the subsequent 3-year return from the market bottom.

Interestingly, history tells us that such dips in markets have been great buying opportunities for investors with a medium to long term view, as India as a country is well placed and has strong growth drivers. While it may be difficult to catch the bottom, even an investment 5% above the market bottom, as per data over the past 15 years, has resulted in returns as shown in above table. Also, the current valuations (NIFTY 1 year forward P/E) are now close to the 10-year Long term Average.

Why India is well placed compared to other markets?

India as a country has long term growth drivers like:

• Excellent demographics (~65% of Indian population is in 15-59 years age bracket)*
• Abundant natural resources except oil / copper, etc.
• Global leadership in services
• Manufacturing opportunity
• Low penetration of consumer goods, improving affordability over long term and large unmet needs of infrastructure
• Rapid adoption of technology and ‘ a vibrant start-up ecosystem

What should one do during such falls?

• Follow asset allocation - Increase your exposure to equities to maintain your asset allocation
• If one is substantially invested in equities- Do nothing - continue to hold on to your existing portfolio
• While the markets have fallen 6.5% from its peak, we may not know where the bottom is. One may consider investing via the systematic route to catch the average
• One may also consider taking exposure to categories like large cap, flexi cap; as funds in these categories have a higher exposure to large cap stocks, which are relatively less volatile

Disclaimer: Kindly consult your professional financial advisor.

*UN population estimates 

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.