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How to Counter Volatility that is Looming Ahead?
Tue, 15 Mar Pre-Open

The markets cheered after the Budget was announced. Indian indices witnessed buying interest throughout that entire week and were on their way northwards. The rally brought much needed relief. This was because before this rally, the Indian indices had witnessed sharp losses. The Chinese slowdown, US interest rate hike, poor corporate earnings, etc. were all to be blamed for the selloff that Dalal Street witnessed previously. Market participants tracked these major global clues and reduced their positions that brought in a bloodbath for Indian indices.

The reason that we are recollecting past market movements is because there are some announcements ahead this week that will again influence the market sentiments.

To start, we have the February inflation data that was announced yesterday. It was noted that the February Wholesale Price Index (WPI) inflation remained unchanged at -0.9% compared to preceding month. This was recorded as the sixteenth straight month that the WPI inflation remained in the negative territory. The numbers were perceived by the markets to play a role in the Reserve Bank of India's (RBI) next policy decision on interest rate cuts. With the numbers out now and the upcoming RBI policy meet in the first week of April, there can be some volatile movements seen in the markets ahead. Bets that the RBI will vote for a further rate cut will govern the markets.

Apart from the above, there's a major event that is touted all across- the US Federal Reserve meeting scheduled this week. Investors will be interested in the Fed's action as well as it's commentary on further rate hikes. One shall note that Foreign Institutional Investors (FII) have been tracking this development and have so far withdrawn a large chunk of money from Indian markets. And considering that FIIs have huge exposure to Indian stocks, they could contribute to significant volatility in the stock markets this time too.

The other event that that will be watched closely this week is the Bank of Japan's (BOJ) monetary policy meet. The meeting comes after Japan joined countries like Sweden, Switzerland and Denmark to adopt negative interest rates.

The outcome of the above events will surely have an impact on the Indian markets in the short-term. Market participants will take cues from these developments and accordingly change their investment decisions. And there could be volatility all over again.

However, we believe that there's no need to worry much about this volatility as long as you are following the value investing approach. Short-term volatility cannot affect you if you are investing wisely and not going in for the speculation game.

We at Equitymaster believe in the bottom up approach in investing. This approach focuses more on stock specific fundamentals and valuations. And hence, makes the portfolio returns immune from economic and market cycles in the long-term.

If and when the above volatility offers you attractive valuations, you should not hesitate to buy fundamentally solid companies run by able managements.

This is because it is not the global factors and market sentiments, but business specific fundamentals that differentiates winners from losers.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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Apr 28, 2017 01:41 PM

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