Be patient, invest systematically

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    Samvat 2079 ended on 10th November with 10.5 percent gains for the Nifty. The highlight of the year was the huge outperformance of the broader market: Nifty Mid cap 100 and Nifty Small cap 100 gave returns of 32.7 percent and 38.4 percent respectively.

    How will Samvat 2080 pan out?

    Volatility is the normal in the market. But this is the age of multiple crisis and heightened uncertainty. Two wars are raging in the world and nobody has a crystal ball to see how these will end. But let’s try to learn from the market signals and discern the method in the madness.

    After the crash triggered by the outbreak of Covid-19 which took the Nifty to 7511 in March 2020, the market staged a rally which has taken the Nifty to around 19500 level now. In spite of two wars and a sluggish global economy, the market is resilient. This ability of the market to climb all walls of worries is the sign of a bull market. It is important to keep this in mind.

    The most important factor impacting global equity markets now is not geopolitics, but the US bond yields. The US economy surprised everyone with its resilience. After the savage monetary tightening by the Fed, the consensus in the market was that the US economy will tip into recession in 2023. But the US GDP grew by  4.9 percent and inflation is above the Fed’s target of 2 percent. The market perception was that interest rates will remain ‘higher for longer’.

    US inflation cooling off is an inflexion point

    The US inflation declined better than expected in October to 3.2 percent. Now it can safely be assumed that the Fed is done with rate hikes and the possibility of rate cuts in 2024 is improving. FPIs are likely to reduce their selling and may even turn buyers, lest they miss out on the potential boom in the best performing large economy in the world. 

    Rally in the run up to General elections?

    Going forward, political developments might influence market trends. This is the season of elections.  Watch out for the state elections results which can be indicative of the General elections results in May 2024. The market behaviour during the last five General elections is important. Markets rallied in the run up to the elections. The rallies started around 6 months before the elections, and the returns ranged between 3.12 to 30.14 percent. It is important to understand that the rally begins in the run up to the elections, not after the results. After the results, the reaction will be sharp, only if the results are totally unexpected, like in 2009.

    Sustained FPI selling is weighing on financials, particularly the leading large banks. The banking sector is doing well; the results are good; the prospects are bright; and more important, the valuations are attractive.  Large cap banking stocks will bounce back. This is an opportunity for patient investors.

    Automobiles and capital goods are in cyclical growth stage. Real estate is doing well. Profitability of the cement segment is improving. Digital platform companies have a long runway of growth ahead of them. In this segment, Zomato is in a duopoly industry and has turned profitable.

    Trying to time the market will be a futile exercise. Remain invested and invest systematically.

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