There is a constant flow of information to help us time our entry and exit from the stock market, but wisdom lies in hanging in there to ride out volatility or the quirks of any market phases.
Indian equities along with global indices are in the midst of diverse market cycles experiencing bouts of volatility based on the events that drive the market direction with a short, medium and long-term narrative. In layman’s language, the direction a market takes is dictated by the ‘known’ and ‘unknown’ factors/events.
‘Known’ events are an active narrative of tracking key data points & factors that gauge a trend in the economy, corporate earnings growth, along with currency, geo-political trade & diplomacy influencing liquidity flows into markets. (Read: GDP run rate, government investment spends, private investments, Inflation, interest rate, demand/supply, CAD, fiscal & trade deficit, global competitiveness, industry, sector & company level analysis, etc). Each element gives an insight that is ‘forward looking’, which helps calibrate near to long term expectations.
‘Unknown’ events are usually unknown to most & its impact is immediate, giving markets a sudden cold… A recovery happens gradually or sooner as the unravels and becomes a ‘Known’ one to absorb & tackle. Examples of such instances are the ongoing strife between Israel and Hamas, the Russia-Ukraine conflict and the impact they are having on energy costs, or the recent mid-banking crisis in the US or the Covid outbreak, all of which elicited reactive measures from central banks.
The takeaway in these cycle of events is that they will keep happening resulting in volatility and corrections, followed by market recovery. What pays off through these changes is staying invested. Over a period of time such equity investments can be mapped to build a ‘predictable carry’ (read: gains) which will weather through future volatility to a certain extent.
In all this, what really matters for an investor with financial goals (read: not trader or speculator) are:
1: ‘Sticking to the program’ of one’s strategic asset allocation (SAA) aligning to one’s risk profile and returns expectations.
2: SAA helps define how much exposure to risky assets is one comfortable to ‘remain invested’.
3: Using liquidity as tactical asset allocation (TAA) to be opportunistic in times of volatility & taking rebalancing decisions, tracing back to one’s SAA & risk profile comfort.
4: And, above all, stay invested & keep investing… Give the time for your investments to navigate through any choppy phase.
It’s important to appreciate that equity markets have only been moving up since its inception, only the pace and breathers depend on all the developing events in each market.
What’s always in control for an investor is the discipline of giving the ‘time to your investments’ with the ‘right investment vehicles’ aligning with your SAA & financial goals.
The aspect of the ‘right Investment vehicles’ needs due research along with your financial advisor in choosing the right fund managers that can consistently perform and navigate through market cycles within a risk adjusted framework.
Then, all that matters is giving the ‘time to chart your wealth creation journey’.
(The writer isPartner at Upwisery)
(Published 12 November 2023, 23:50 IST)