What do the markets hold for investors? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

What do the markets hold for investors?

Oct 24, 2000

With the kind of fickleness that domestic markets have shown in recent times, making a near term call on the market is next to impossible. However, for long-term investors, the markets are once again presenting an investment opportunity. Before we delve into the long terms aspect, let's take a look at what have been the underlying factors that caused this bearish phase in the markets. First ofcourse is the drought. With over 60% of the Indian population living in rural areas, a decline in agricultural output has a significant impact on domestic consumption activity. This is already evident in the sluggish growth in sales of consumer products. Next to hit the market sentiment was the floods in the East, which once again impacted consumption activity, apart from, once again, impacting agricultural output.

Second, is the slowdown in industrial activity. This has been triggered by sluggish growth in consumption, which in turn has contributed to the dull investment climate. Overall, the industrial sector has been hit by both slower consumption and sluggish investment activity.

Another factor responsible for contributing to the industrial slowdown and also to the change of sentiment on the bourses has been higher crude prices. This has created a situation where inflation is rising and so is the deficit in the oil pool account. The oil pool deficit has significant implications for the fiscal position of the government.

The three developments stated above have been largely responsible for the sell off in the markets (apart, ofcourse, from the fact that few companies have announced lower than anticipated earnings in the second quarter). In such a scenario, where does our enthusiasm stem from?

Well, despite the slowdown in the Indian economy, we are still likely to post a GDP growth rate of 6%. This is in line with our average growth rate recorded over the last few years. Also, the ills mentioned above are hardly fundamental to the economy. They are not the result of bad policy decisions, but natural developments. Taking a call on agricultural output in the coming year would be like betting on or against a normal monsoon. Ditto for crude oil prices. The slowdown in consumption activity that has hit domestic demand is more temporary than permanent (unless ofcourse someone believes that monsoon will fail year after year).

Over the long term, the impact of sub normal monsoons or a spike in oil prices will seem no more than a blip on a chart plotting the stock market indices. What would matter are the long-term fundamentals of the economy/industry/company. And these remain firmly in place. Infact, with the reform process moving on (albeit slowly), the Indian economy is likely to become more vibrant in coming years. For long term investors the markets have once again presented an opportunity to enter into stocks that have been hit more by sentiment than fundamentals. And as history has shown, mis-pricing in the markets is always corrected.

Equitymaster requests your view! Post a comment on "What do the markets hold for investors?". Click here!


More Views on News

Top 5 Stocks Mutual Funds Bought and Sold in March 2021 (Sector Info)

Apr 16, 2021

A look at what India's top equity mutual funds bought and sold in March 2021.

Kotak India EQ Contra Fund: Eliminating Emotional Bias (Outside View)

Apr 16, 2021

PersonalFN's analysis on the features and performance of Kotak India EQ Contra Fund.

A Warning About Bubbles (Fast Profits Daily)

Apr 16, 2021

Those who don't learn from financial history are doomed to lose their money.

11x Bankruptcy to Bluechip Stock: A Rare India Revival Story (Profit Hunter)

Apr 16, 2021

There is no stopping this 11-bagger stock from significant upside.

Market Crash: Picture Abhi Baaki Hai? podcast (Views On News)

Apr 15, 2021

Rahul Shah on whether another big crash is likely and the ideal strategy to counter it.

More Views on News

Most Popular

India: Recovery Stalled by Vaccine Games? (The Honest Truth)

Apr 13, 2021

Ajit Dayal on how India's vaccine strategy will impact the markets.

4 Stocks to Make Your Portfolio Immune to the Second Covid Wave (Profit Hunter)

Apr 6, 2021

Rather than predicting the market, successful investing is more about preparing well and placing your bets accordingly.

An India Revival Stock I'm Bullish On... (Profit Hunter)

Apr 9, 2021

This could take India to the position of 3rd largest economy.

Why Did the Market Crash on Monday? (Fast Profits Daily)

Apr 13, 2021

In this video, I'll you what I think is the real reason behind yesterday's market crash.

A Unique Sector for Short-Term Profits (Fast Profits Daily)

Apr 12, 2021

This ignored sector could deliver big short-term profits.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Apr 16, 2021 (Close)