The markets have moved significantly over the past couple of months as multiple events unfolded, both on the domestic as well as the international front. A downward spiral dampened investor sentiment, driven by valuation concerns and earnings downgrades. We’ve also witnessed a massive sell-off by FII’s, especially during the months of October and November 2024. Domestic investors, on the other hand, played the role of market saviors, injecting Rs. 89,740.40 during the month of October and 32,154.89 during the month of November 2024.
The country’s Gross Domestic Product (GDP) has been a major talking point over the recent period as it slowed down to 5.4% during the July-September quarter of 2024, which was the lowest level since March 2023. This was down from 8.1% in the same period last year and 6.7% in the previous quarter. We’ve highlighted in the past how the country’s GDP has not been supported by a strong per capita income. Despite these numbers, India continues to remain amongst the fastest growing economy in the world. The market correction, whilst indicative of multiple macro and micro events, does not necessarily signal a long-term decline, unless triggered by a spate of irreversible events. India Inc. continues to remain amongst the strongest markets, as can be seen from the market data table.
What does the slowdown mean?
Let’s decode the slowdown, and what it means for Indian investors. RBI’s tightening of the credit cycle comes as a major factor that leads to the slowdown.
A falling Rupee against the US Dollar is another point of contention. But why is this not concerning? We think that a falling Rupee is more an outcome of the US President Elect’s push for higher tariffs, the ripple effect of which is being felt across emerging markets, with China being impacted the most and India being the least impacted. The impact of tariffs from the US could mean the dumping of Chinese goods into Indian markets, owing to a widening trade deficit, unless the Rupee depreciates.
One of the factors that could cause disruptions are the unemployment levels and the unavailability of skilled labor especially within the manufacturing sector. What worked in the country’s favor is the boost in capex spending and the push towards urbanization. The much-needed growth and development of infrastructure supports the expansion of cities in terms of size as well as population.
The way forward…..
A very relevant and interesting quote by Paul Samuelson comes to mind – “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
He could not have summarized the concept and process of investing better. But here’s also an equally good example, where we think that investing is akin to running a marathon. A novice might just try to run throughout, tiring out in the process; but an experienced runner would understand the route and the topography, saving his/her energy when he needs it on the toughest slopes.
It’s important to note that despite the recent correction, Nifty has been one of the best performing equity indices globally over the past year and the best among the emerging markets since the start of 2023. In fact, over the past two years, the Indian market has surged by more than 35% translating to a substantial 15-16% annual return. While these returns are impressive, it is crucial for investors to revisit their expectations and understand that the markets are cyclical in nature.
Recency bias can be a powerful and often misleading influence that we’ve witnessed over multiple market cycles in the past. History has shown us that no rally lasts forever, neither does a downturn. Staying grounded and having realistic return expectations is the most vital ingredient when it comes to ensuring a smooth investment journey.
