How to Play the Market After Sensex 40,000 - The 5 Minute WrapUp by Equitymaster
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How to Play the Market After Sensex 40,000

Sep 3, 2018

Editor's Note: Dear reader, the markets are scaling record highs every week. The Sensex is close to 40,000. For today's edition of The 5 Minute WrapUp, I asked Ankit Shah, editor of Equitymaster Insider, to share his views about the next course of action for investors. Over to you Ankit...


Ankit Shah, Research analyst

Sensex 39,000 is almost here. Sensex 40,000 is just 3% away.

Who could have predicted that the Sensex would be making new highs after faltering in February 2018?

Back in May 2018, there were worries of rising crude oil prices.

The Indian rupee has been correcting continuously...making new lows against the US dollar. Currently, the USD-INR exchange rate is Rs 70.25 per US dollar.

The rot in the Indian banking system, especially public sector banks, isn't going away too soon.

The small cap stocks witnessed a major sell-off following reclassification of mutual funds and additional surveillance measures by the market regulator.

But the Sensex kept rising from one high to the next.

For anyone who tries to predict the near to medium term direction of the Sensex, the stock markets offer a very humbling experience.

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When you expect a correction, the markets keep going strong. And just when you are certain the markets could only go one way - higher, the markets shock you with a correction.

I understand it is our innate tendency to seek certainty...to have a firm ground beneath our feet...to know for sure where the markets are going.

And the markets always leave us hanging on a dangling branch, with absolutely no clarity about what's going to happen next.

So, don't wait for that day when you will know 100% how the markets are going to behave. The key to winning the game of investing is to embrace the uncertainty and volatility, and to keep playing the long-term game with patience, diligence and discipline. It may sound simple and boring. But well, that's the hardest thing to do.

It took me a long, long time to internalise this insight.

So, we will try not to predict the direction of the markets. However, we will keep looking at the key factors that are driving the markets.

One of the key factors responsible for the buoyancy of the Indian markets is the flood of domestic liquidity into equities.

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The stock markets are getting insanely crowded. There's a crazy rush of Indian investors to grab a pie of the boom in the Indian stock markets.

Look at this chart...

The Great Indian Retail Investor Rush

It shows the quarterly growth trend in equity oriented assets under management of retail Indian investors since the quarter ended 2009.

Here are some interesting insights in the above chart:

  • From the quarter ended September 2009 and to the quarter ended September 2013, equity oriented AUMs of retail investors were in a downtrend. They bottomed in the quarter ended September 2013 at Rs 1,087.9 billion.
  • After the quarter ended September 2013, equity oriented AUMs of retail investors have risen at phenomenal compounded rate of 31.5%. During the same period, the BSE Sensex and the BSE 500 indices have compounded at 14.9% and 17.7%, respectively.

It goes without saying that the game of investing is getting more and more competitive.

The only way to survive this cut-throat competition for equity returns is to have an edge over the other investors. You can't be doing what everyone else is doing, and expect to outperform them. You can't react to the cycles of greed and fear the way others do, and expect to be a winner in the long run.

So, to stay ahead of the crowd, you need to be an investor with a difference...

In forthcoming Insider issues, I will explore various factors that are driving the Sensex towards 40,000. I'll also show you why it is impossible to guess what's going to happen next and how to invest despite such uncertainty. In addition, I'll also take you through the latest updates on some of the Insider stock picks.

I'd also like to bring to your notice that my colleague Kunal Thanvi published his latest Smart Money Secrets recommendation report recently. His latest stock recommendation is in an interesting transition process - from non-consumer facing business to a consumer facing one. And there could be a great value unlocking potential there.

Join Kunal's Smart Money Secrets and lay your hands on his potential multibagger stocks right away.

Happy Investing,

Ankit Shah
Ankit Shah (Research Analyst)
Editor, Equitymaster Insider

PS: Every day the markets are open, Ankit Shah, editor of Equitymaster Insider, cherry picks one investing idea from our 8 premium publications. This is the one idea that he considers to be the best moneymaking opportunity in the market. He shares this idea with an exclusive group of readers on his 'insider list'. Today, you have the chance to join this exclusive group of Ankit's insiders.

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