“You get
recessions, you have stock market declines. If you don’t understand that’s going to happen, then
you’re not ready, you won’t do well in the markets.” — Peter Lynch
When hit with recessions or declines in
the stock market, one must stay the course. Economies are usually cyclical, and
historically, the markets have shown that they will recover, sooner or later.
Make sure you are a part of those stock market recoveries.
Some Good News: The Monetary Policy Committee of RBI unanimously
decided to keep the policy Repo Rate unchanged at 6.50% thus bringing a
temporary pause to the ongoing rate hikes. The RBI’s decision to keep the rates
unchanged came in as surprise to majority of the market participants as against
their expectation of rate hike.
The stance was tweaked
somewhat with focus now on “progressively aligning inflation to target” along
with “withdrawal of accommodation”. This is clearly an attempt to deliver
hawkish pause.
We believe that we may
have reached at the peak of the rate hike cycle and expect to stay there for
the rest of this financial year, and do not foresee conditions for a rate cut
materializing soon, given sticky core inflation, steady growth and 1 year ahead
inflation staying well above RBI’s target of 4%. Overall Impact –
Positive for Markets
Threats in April:
More defaults from
West: Jamie Dimon of JP Morgan says
the banking crisis is not over and will cause ‘repercussions for years to
come’. Hence there is more room for correction if the global turmoil continues
given the fact that the Indian stock market is not cheap.
Higher US Inflation: High U.S. inflation has been a key concern through
the whole of calendar year (CY) 22. Market consensus estimates factor in a
reduction in inflation for the U.S. from 8% in CY22 to 3.9% in CY23. However,
inflation may prove stickier than expected on the back of persistent supply
side issues and China reopening. This may prompt Fed to raise rates for
another 2 quarter – a big negative for markets.
Rise of COVID: COVID cases have started to rise again. Daily
infections shooted past 6K figure. Though this is in early stage, Govt is
prepared in advance to tackle it. Booster doses are also available this time
for general public.
Karnataka Assembly
Elections: Dates for Karnataka
Assembly elections have been announced. Polling on 10th May & Counting on
13th May. This is a crucial state from BJPs point of view. Losing this key
state will be a big set back and can affect markets negatively – temporarily.
What Should
Investors do in New Financial Year:
Continue their SIPs: Markets have been underperforming for around last 1.5
years from the start of Russia-Ukraine War. Healthy corrections is a basic
characteristic of sound market and cannot be ignored. Markets will bounce back
aggressively in future, but only those clients who have continued their
investments and averaged their investments at low, will tend to benefit with
higher returns.
Stopping SIPs by
fearing current scenario and coming back for investing when market had already
recovered will do no good for your portfolio.
Changing Schemes based
on Returns %: Market constituents are
very dynamic and should not be judged only based on returns generated. In
Moneyfrog, using our Dynamix model we tend to track each and every sector and
scheme on a day to day basis. If particular scheme has not performed in a particular
period, it does mean that it will not perform in future as well.
For eg: US markets have
corrected the most in last 1 year (around 36%). US Stocks are leader in market
share and are disruptors. Indian peers are no way compared to growth, revenue
& market share. Hence a correction in US based schemes should be seen as an
opportunity, rather than exiting now. One will get the highest returns in 1
year time if they stick to the scheme and continue investing.
Shifting to Debt/FDs: FDs returns have risen in last 6 months due to continuous
rate hikes by RBI. Investing in FDs/ Debt Funds are recommended to those
clients who have retired or in need of a fixed monthly income to take care of
their day-to-day needs or by those clients who will need it before a
years-time.
Most of the clients are
young, still long way to retire, no shortage of funds to meet months end
portfolio build up has just started. They should always use any dip in
markets to add more funds rather than shifting to Debt.
Once again repeating, “Portfolio has always given higher returns, whenever
investments are continued, mainly during market falls.”
Last two consecutive
months we are recommending 100%
allocation to Equity funds due to steep market corrections. This month as well,
one may continue the same, expecting a side-ways market.
Happy Investing!
