Celebrate this Diwali with the “Great Indian Equity Festival”
As the festivities are about to begin, Indian equity markets decided to offer a gift in the form of a big sale. Indices and individual stocks are showing steep correction in this month.
For the first time since 28th June 2023, Nifty 50 fell below the 19,000 mark.
But what is driving this fall? How should investors invest in current times?
Let’s find answers to these questions.
What are the factors behind this correction?
- Israel – Hamas War: Israel’s retaliation to one of the deadliest attacks from the Palestinian militant group, Hamas, has raised global concerns. Fear grips as news about the possibility of Israel’s invasion of Gaza may trigger a full-blown war involving various countries.
- Worrying Signs of the US Economy: Although the FOMC (Federal Open Market Committee) has raised its growth projections for the year 2023 to 2.1% from the earlier estimate of 1%, it has also indicated higher levels of interest rates for a prolonged period.
- US Bond Yields: The US Government’s 10 Year T-Bond yields touched the level of 5% for the first time in 16 years since July 2007.
- FIIs Selling: Increasing yields in the US bond market have resulted in FIIs taking the money out of Indian markets. FIIs have sold for more than 20,000 crores in cash market on a net basis each month consecutively for three months.
- Appreciating Dollar: Increasing bond yields in US bond markets, FIIs selling, and increasing concerns in the geopolitical situation have led the dollar index to remain strong against all currencies with no exception to the Rupee. The Indian Rupee has witnessed a record low of 83.29 in the last month and is currently hovering around 83.25 near its all-time low.
- Other factors: Other factors, such as a slowdown in the global economy with economies such as China, the UK, etc., showing a decrease in productivity, an increase in India’s current account deficit, and increasing crude oil prices, etc. are also contributing to the negative sentiment in the markets.
How can this war affect the Indian economy?
India’s trade with Israel has grown significantly over the last few years. The data shows that India’s exports and imports have increased 17 times and 4 times, respectively, from 1999-2000 to 2022-23.
- Israel is one of the leading producers of crude oil, which is affected due to this war. OPEC (Organization of the Petroleum Exporting Countries) has already decided to cut production, adversely affecting the supply of crude oil, and resulting in an increase in prices, which forms a significant component of Indian imports.
- Additionally, if this war escalates and other nations jump into it, global economic activities may see an adverse effect. This will result in further strengthening of the USD until the concerns of geopolitical instability cool down. However, this war may not impact the Indian economy as much as it would affect the global economy.
India’s story of highest GDP growth
India is considered a promising emerging market story, which grew at an average annual pace of 6.6% in the decade to 2019-20. In 2022-23, with a growth rate of 7.2%, India has outperformed most other major economies.
The International Monetary Fund (IMF) predicts that the Indian economy will grow by over 6% in the next few years and is on track to be the world’s third-largest economy.
Additionally, The Morgan Stanley Report on India 2023 has predicted an economic boom for India, which will make it the third-largest country in the world by the year 2027. Also, Rajeev Kumar, Vice-President of Niti Ayog, said, “India will not be affected by the recession, and India will grow its economy by 6% to 7% by 2023-2024.”
What should you do as an investor at this time?
Equities, as an asset class, have an inherent volatility that can, at times, reach extreme levels, putting even the most seasoned investors to the test. We find ourselves in the midst of such a turbulent phase, and the duration of this storm remains uncertain.
During turbulent times, selling your investments prematurely can result in losses. Before stopping further investing and selling existing investments, we must not forget that the Indian markets have shown a remarkable rally in this year of more than 20% in less than 6 months from the lows of 16,828.35 on 20th March 2023 to the highs of 20,222.45 on 15th September 2023.
However, due to external factors such as geopolitical conditions and global economic concerns coupled with negative sentiment, it might be possible that the markets may go down further. But this event provides an opportunity to invest for long term as the Indian economy is fundamentally strong and is expected to remain so.
Hence, we call the current volatile moment the moment of the Great Indian Equity Festival. Rather than panicking, we should ignore the noise and focus on our long-term objectives.
We believe –
• If you stay the course and remain mindful of market trends over time, you’re likely to benefit from a market rebound, leading to significant gains.
• If you adopt a systematic investment strategy, it will help manage market ups and downs. So, stick to your regular investment plans (SIPs) and smartly use systematic transfers (STP) for lumpsum investments.
During these tough times, it’s vital to shield yourself from rumors and speculations. Keep your eyes on your financial goals as a guiding star in the unpredictable financial world.
Remember, the timeless virtues of patience and discipline, passed down through generations, are your best allies during difficult times. They are likewise mentors reminding you that staying committed and maintaining self-control are the keys to long-term financial success.