Benjamin Graham, in his classic ‘The Intelligent Investor’, uses the allegory of ‘Mr. Market’ to explain the market mood. Mr. Market is highly emotional. He swings wildly between extreme emotions of euphoria and depression. His behaviour is often characterized by greed and fear.
Presently, the market mood has swung to pessimism. Negative news flows have made Mr. Market pessimistic. Many investors too have been impacted by this depressive mood. This negative mood is reinforced by some real concerns. It is true that some concerns are genuine. There is a slowdown in the economy. Some segments of the economy have been gripped by sharp slowdown. The automobile segment, which accounts for around 48 percent of manufacturing, is in serious slowdown. Economic growth has slumped to one of the lowest levels in recent times. Business confidence has been impacted and animal spirits have been dampened. It is no surprise that the market has turned pessimistic.
A rational investor should know that such downswings in segments like automobiles, and the economy in general, have happened many times in the past. Economic growth is not linear; it is cyclical. With the right kind of policy interventions, the downswings can be arrested and reversed.
The ‘manic-depressive’ behaviour of Mr. Market offers opportunities for the ‘Intelligent investor’. Graham wrote, “Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market.”
For the ‘Intelligent Investor’, there are opportunities in this market. Quality stocks with proven track record are available at reasonable valuations. These bluechips have been consistent compounders for long. Such stocks can be accumulated for the long-term. Almost every portfolio will have some low-quality-non-performing stocks. This is the right time to get rid of such duds and move to quality. For the retail investor the present time is just perfect for SIPs. So continue with your SIPs to enjoy the benefits of cost averaging and the power of compounding.
In this depressive mood when some people are even questioning the India Growth Story, it is important to appreciate the fact that the fundamentals of the Indian economy are in tact. The catalysts of the India Growth Story like our demographic advantage, entrepreneurial talent, low base of per capita income, low penetration levels for most consumer goods and services, an aspirational middle-class, stable political system etc are all in tact. The slowdown is temporary and will be arrested and reversed. Mr. Market, swinging back to optimism, is only a question of time.