The BSE-Sensex has had a volatile ride over the past 3 years since the credit crisis and Lehman Brothers collapse. Markets and sentiments reached their peak in Jan 2008, and then came crashing down with the bursting of the real estate bubble in the US.
Just last year, stocks reached their previous highs and the markets were once again at their peaks. But, this party did not last for too long. When 2011 arrived, the markets came crashing back down like a house of cards. The debt crisis in Europe, rising commodity prices, and now concerns over the sustainability of the US economy all added to the mess. According to iconic investor Peter Lynch "Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves."
Indian retail investors this time around seem to show more resilience than before. Earlier, they would panic at the first sight of blood in the market. They would exit in droves, and the lines for mutual fund redemptions would stretch for miles. This time around however, they are sticking with their investments, even in light of the worsening global macro sentiment. Mark Mobius, executive chairman, of Franklin Templeton, explains this new phenomenon. He believes that investors learnt various lessons during the sub-prime crisis. People got out of their investments too soon, in the wake of the 2008 crash. The subsequent recovery was so fast they didn't have a chance to get in again.
Most major markets, including the MSCI Global Index, as well as the Sensex, recently entered a bearish market by falling almost 20% from their previous peaks. However, they are now seeing somewhat of a recovery after the US Fed pledged to keep interest rates low for two more years.
Gold has also seen a substantial rise over the past few weeks. By far, it has been one of the most consistent performers. We believe that the Indian retail investors have got their formula to investing correct this time around. They are not selling in panic, and they are also investing in safe asset classes like gold. We believe that this will hold them in good stead over the long run.