Volatile stock markets can give you the experience of riding a storm. Just like you hope for sunshine at the end of it, you need to hope for a bounce back. There is a lot of concern about a sudden weakness in the stock market.
If you tune in to business television or pink papers, you will find pundits talking about a potential hike in the US interest rates rising prices of food and other goods, among key factors. However, if you follow the financial performance of leading companies in the IT services, banking and finance and manufacturing, they are doing better than expected. The future trend of share prices in the stock market over a long-term period is determined by the ability of companies to make profits. In that context, a fall in share prices today opens up an excellent opportunity for new investors to move in.
Who is selling
Foreign portfolio investors or foreign institutional investors have been net buyers in Indian equities as share prices scaled dizzy heights. As interest rates are set to rise across the United States and Europe, these investors would cut their exposure to equity markets that carry a higher risk than the rich nations.
It is a common feature whenever an interest rate cycle turns. Institutional investors rationalise their equity investments as the sentiment turns negative. The selloff is an adjustment of the portfolio.
However, that adjustment is more liquidity driven than based on company fundamentals. Money taps are likely to get squeezed after a couple of years of near-zero interest rates in the US and other wealthy countries.
However, interest rates have always been higher in countries like India. At the same time, not all businesses get affected negatively by inflation or rising interest rates. Some sectors are unaffected by the changes in the cost of money. These include export-oriented companies like technology services, pharmaceuticals and financial services.
A lot of hopes are pinned on the economic recovery. “We expect a fully-fledged growth recovery, with all drivers firing and macro stability indicators remaining in the comfort range,” said a report by Morgan Stanley, a global bank articulating a boom in credit growth.
If that is true, it means businesses are all set to push forward on expansion. There would be more hiring across sectors and even higher consumption. That is good news for companies relying on consumption for growth. Financial services are expected to boom with the credit growth at a 28-month high. That means non-food credit is growing faster than before the pandemic and lockdowns. Credit card spending is also surging to a new high after the pandemic.
Staying invested
Investing is all about the future. You invest in any asset today with an idea to have enough money for tomorrow. For years, people kept buying real estate and gold to help fulfil that need. However, financial assets are now increasingly popular not just in metro cities but also in the heartland.
New wave fintech companies are creating a revolution making it easy for everyone to own and manage financial assets. That has triggered an increased inflow into mutual funds and directly in the stock market. However, it is essential to take professional help to make the right choices.
When starting to invest in the equity markets, the first step you need to take is to get a financial advisor. People are making a living based on financial advice. Some individuals sit across the table and guide you to invest. Then new-age fintech companies use technology to give you data-centric advice. Many stockbroking companies create a theme-based portfolio for you to invest in based on the market situation.
Whether you invest directly or through a mutual fund or an index fund, it is essential to invest regularly and stay invested. Over the past five years, an investment in the S&P BSE Sensex index fund has doubled or jumped over 100%.
That is the most effortless equity investment you can make. Equity markets offer a superior return over all other asset classes over 10 to 15 years. You need to stay invested for that benefit to accrue to you.
(The author is editor-in-chief at www.moneyminute.in)