What should you do with the current market correction?
Marina Wealth
We have been witnessing a continuous downward spiral in the Indian stock markets over the last 1 month or so. The reasons attributed to the fall are due to the huge Income Tax dues raised against FIIs under the Minimum Alternate Tax (MAT) provisions, lower than expected corporate earnings, unseasonal rain and the worry of poor monsoon, the uncertain geo political situation in Middle East and the rising crude prices, inability of the NDA government to push through reforms in the absence of majority in Rajya Sabha.
Whatever may be reason, its true that the fall is causing jitters in the minds of the investors and creates self-doubts about the wisdom of long term investing, which we passionately advocate. I understand the anxiety of the investors and in this regard, I would like to point out that all stock markets in general, and bull markets in particular, will see these kind of steep corrections.
The current correction or the fall is a good 10% drop from the peak of 9000 levels which we saw just after the Budget in March 2015. The FIIs and other market players were looking for a reason to book profits and take money out and the above mentioned reasons provided them a good opportunity to do so.
If you step back a little and see what has happened in the last 1 year of this NDA government, we notice key developments in the following areas:
a. coal auctions and spectrum auctions were successful, providing the much needed transparency and funds to the government
b. increased focus on improving the ease of doing business
c. big push towards manufacturing through Make in India campaign
d. fast-track project approvals for infrastructure projects
e. increased focus on road development works by awarding
All these projects are expected to trigger sustained economic activity in the months to come. The lower earnings reported by corporates is expected change over the next 3-4 quarters, though it has taken longer than expected. Exactly the reason, why the stock markets are probably correcting with FIIs exiting.
Few other triggers like the changes in labour laws, land acquisition bill and the most important GST coming through in the next few quarters, I see a strong trigger for earnings growth of Indian companies. If the global economic conditions also help, it will help the Export oriented companies. The recent depreciation of Indian Rupee will also make the Indian exports more competitive.
It is also important to understand that all previous bull runs had it share of big market corrections, similar to the one we are seeing now. I have given below the chart and the corrections the markets have seen between 2003-2008, so that it gives you a perspective of this correction.
From 2800 levels, the markets finally reached 21,000 in spite of multiple corrections as depicted above.
I believe the current market correction would be a good entry point for people who were sitting in the sidelines and for existing investors its an opportunity to increase their Indian Equities exposure.
I would like to finish with the famous Warren Buffet quote ” Be greedy when others are fearful; be fearful when others are greedy”.
Right now, the mood is fearful and it may be a good entry point for your long term investments!
