Patience is the Key to Unlock Attractive Market Returns
The stock market is going through difficult times. If we look from the short-term perspective, returns are poor. The mid and small-cap space has given very disappointing returns. Though the Sensex and Nifty closed at record levels above 40000 and 12000 respectively in May this year, majority of retail investors were not celebrating because the rally was led by 10 to 12 stocks with high weightage in the indices.
Now even Sensex and Nifty have corrected by around 10 per cent from the peak. The cuts in Nifty mid and small-caps have been sharp. The slowdown in the economy and poor corporate earnings have adversely impacted the market. The market sentiments were further affected by the budget proposal to raise the surcharge on the super-rich since this affected Foreign Portfolio Investors (FPIs) registered as Trusts. FPIs, who were consistently buying since early February, turned sellers after the budget.
It is important to learn from history. History tells us that there will be periods of low economic growth, low corporate earnings and negative market returns. We are presently going through such a challenging phase. Even the global environment has turned unfavourable with concerns of deceleration in global growth in 2019. In India, the economy is going through a sharp slowdown. It is a fact that business confidence has been adversely impacted and animal spirits have taken a knock.
History tells us that this down cycle will end and recovery will begin. The base year of Sensex is 1979. From the nominal value of 100 in 1979, it took Sensex 11 years to touch the 1000 mark in 1990. Then it took 16 years to reach 10000 in 2006. Then, in one of the spectacular bull-runs in history, it doubled in around one year to touch 20000 in December 2007. From the peak of 20000 in 2007 it took another 12 years for the Sensex to double to 40000 in 2019. In Sensex’s journey from 100 to 40000, there were ferocious bull rallies, big crashes and some periods of painful stagnation. The bull markets of 1991-92, 1999 and 2007 were sharp and ferocious. The crashes of 1992, 2000 and 2008 were sharp and devastating. During the five-year period of 1994-99 the market almost stagnated and didn’t give any returns at all. Investors should understand the cyclicality of the market and returns. Returns from investment will not come in a steady and consistent trend. Returns come in ebbs and flows.
It is important to understand that the fundamentals of the Indian economy are sound and the catalysts of the India Growth Story are intact. When the economy, corporate earnings and the market eventually turn, the returns would be impressive. To benefit from this, it is important that investors should continue to invest. SIPs (Systematic Investment Plans) bring fabulous returns to those investors who continue to invest through the down cycle. Lower cost of averaging plus the power of compounding will create wealth for investors. It might take a bit longer; but it is inevitable. As the saying goes, “to be successful in the market, you need an ordinary person’s intelligence and 10 persons’ patience.” The present challenging times will test the patience of investors; but undoubtedly, their patience will be richly rewarded.