Massive Market Tumble – Get Your Stock Shopping Bags Ready
Get Your Stock Shopping Bags Ready
After yesterday’s unprecedented market crash, we received several frantic and panicky phone calls and queries from umpteen investors as well as non-investors in the stock market. But what surprised us the most was the pace of information dissemination in the “whatsapp era”. There were queries from housewives, professionals and others whose daily routine has little to do with stock markets and yet the reverberations of stock market crash reached them almost immediately through their smart phone.
Today’s newspapers are replete with reasons for the market crash, whatsapp groups are actively telling you how much money was lost by investors and news channels are giving expert opinions on what to do in such volatile times. It’s easy get confused in the din of this information age. So this article will focus on how an investor can benefit from such market situations.
GreenEdge Wealth Services’ Market View
The events of the past few months could rather be confusing for investors – markets are 15% lower from their February highs, quarterly results haven’t been great and on-ground business activity hasn’t picked up meaningfully. Where are the ‘aache din’ as promised by our Prime Minister and many other dignitaries?
There are multiple factors that affect the stock markets in the near term, but corporate earnings are the single most important driver in the long term. Let’s start by analyzing the short term – commodity prices have fallen significantly over the past six months, indicating weak global demand. Commodity exporters like Russia and Brazil witnessed significant turbulence in their currencies and stock markets. Chinese economy too started showing signs of slowdown and their stock markets started collapsing. All of the world’s major investors are invested in China and losses here would mean significant hit on the P&L. A natural behavior during such times is to pull out money from other markets and shore up cash balances. As a result, most of the emerging market indices including India started falling.
Now let’s try to understand the positive long term implications of this on India – lower commodity prices help us to reduce our import bill and contain inflation. The saving will help the Government to spend more money on infrastructure and capex projects that will help revive the Indian economy. Also, margins of corporate that use oil & metals as inputs (tires, cookers, pens, chairs, etc) should expand meaningfully and translate into better earnings.
Of course, there are some negative implications too – companies that are heavily dependent on exports to China, Russia, etc could suffer. Indian companies in iron & steel sector will see lower demand for their finished products and might default to the banking system. However, these companies form a smaller proportion of Indian economy and will not impact the overall growth prospect of India.
We believe that the current fall is a correction in a multi-year bull market and that more wealth will be created over the next five years. The same old rule of being stock specific continues to apply in the current context. Gold and real estate are showing signs of a multi-year slowdown, thus leaving stocks as the only avenue for earning high returns.