Volatility during 2023 was anticipated by many of us at the turn of the year as also, as the uptick in inflation and hardening of rates. However, the Hindenberg report on the Adani group which more than halved its market capitalisation came out of the blue and set the cat among the pigeons, so to speak, at the Indian equity markets.
This also led to a slam-dunk across equities resulting in a decline in the key frontline indices too. The silver lining here was that an overheated market let off steam and there were value picks available for the taking among a lot of shares whose prices got hammered and to an extent that defied logic.
The decline in indices was largely triggered by the Foreign Institutional Investors ( FIIs ) selling off lock, stock and barrel and factoring in the worst-case scenario that could play out in India post the Hindenberg report. So, what happens if that scenario does not play out and the inevitable damage is lesser than anticipated?
Once the dust settles, will those FIIs be back, sooner rather than later, on a buying spree and will that trigger a sharp surge in the Indian indices? Time alone can tell, though if I were a betting man, that is where my money would be. When that will happen, if it does, is the tougher question to answer.
For a long, at the guest lectures I conduct at B-Schools I have spoken to the students about the difference between linear and lateral thinking while investing in the bourses. Back at my place of work, we interact with a fair number of well-educated High Networth Investors (HNIs) patrons from urban areas across the globe, who have expectedly discussed the state of the market and the road ahead with my team. Most of them have even decided to top up their investments via the SIP / STP route which, I believe, is an optimal linear decision.
A few of our HNI patrons hail from rural areas across India and what they lack in terms of educational ‘labels’, they more than makeup with their lateral thinking ability to sense a killing whenever the opportunity presents itself. A couple of them surprised us by simply asking to invest fairly large sums via the Lump-Sum route, sans any queries on the state of and outlook for the equity market.
As a matter of abundant caution and professional compliance, my team did explain the pros and cons of making lump-sum investments and that too in a market that seems precariously perched in the near term.
Well, their line of thinking was simple. The investments they were making were for their next generation and with a time frame of a decade in hand, they were confident that the returns would be handsome. Given that kind of clarity of thought, there was little left to debate.
Linear or lateral thought, it is the ability to ride risks and with immense patience, that separates ‘few winners’ from the ‘many also rans’ in any equity market.
Ashok Kumar
Head of LKW-India. He can be reached at ceolotus@hotmail.com