Mountain, meet Molehill

ILFS default. Yes Bank succession disaster. Housing Finance Company Books Cooked. Jet Airways on the verge of default. It is carnage.

The Calm Investor | India Market Correction

If you have been following financial media over the last two weeks, we’re already at 2008-level crisis-alert levels. The wheels are coming off the India equities growth story and there are many obvious reasons why, we are being told, by patient experts.

The problem is, they only started explaining how a combination of trade wars, impending elections and bond defaults explain the correction after it has been well underway. Now, I have no idea whether this is a complete reversal in overall market direction or a temporary correction, one of the “advantages” of having no macroeconomic expertise.

When you compare market levels from late August, There has been a noticeable correction, that much is clear.

The Calm Investor | India Market Correction

But let’s take a step back before constructing bomb shelters and buying doomsday supplies.

Remember there was a correction earlier this year towards the end of January. If that peak was our starting point, the NIFTY has now ‘corrected’ to that peak. The NSE500 has done a tad worse and is down 5%

The Calm Investor | India Stock Markets

Another step back. Go back one year. With the latest correction, the NIFTY is up 10% and the NSE500 is up 5%

The Calm Investor | Best Stock Market Blog

You guessed it. A slightly larger step back. To early 2014. Markets have almost doubled in under five years.

The Calm Investor | India Investment Site

For most of 2017 where markets had misplaced the red ticker, stocks surging from one high to another was the anomaly.

So if Indian markets correct by 15-20-25% in the space of a few weeks, it is not Armageddon. When valuations are overbought, anything is an excuse for the markets to correct. It is equity markets being equity markets. Of course, if you decided to enter lump sum into the markets sometime in Jan 2018, then, oops.

Maybe there should be a disclaimer about how markets behave.

Referring back to a post from January 2018, here’s what I had suggested long-term investors do:

Given steep corrections are rare in general, my strategy over the last month (Jan 2018) has been:

  1. Reduce exposure to stocks that have run up far ahead of fundamentals
  2. Great opportunity to exit low-quality stocks or stocks that worsened fundamentally
  3. Hold (but not buy more) stocks that have strong fundamentals
  4. SIP into MFs investing in international markets that are still relatively cheap

I will add #5, most importantly, stay calm.

Further Reading:

Brace for negative returns in 2018 [link]

Why I am not selling everything…yet [link]

 

One thought on “Mountain, meet Molehill

  • October 24, 2018 at 10:07 am
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    I think this is a good correction but more is coming. Unless we see some good rupee devaluation stocks can get another 10-15% down before end of the year.

What do you think?