We are moving towards the new year and at this time Indian investors are full of uncertainty. Many types of questions are arising and their answers are not easy. For example, what will be the impact of Trump assuming power in America on India? Trump has proposed a number of corporate tax cuts and is preparing to increase tariffs. Will this cause Foreign Institutional Investors (FIIs) to withdraw money from India and invest it in the US stock market? A rise in US bond yields will definitely be seen. Talking at the geopolitical level, tensions between India and China are likely to reduce, while challenges remain in the Middle East.
How will be India’s economic and corporate performance in the near future? Is India’s consumption slowdown temporary or is it due to structural problems? Will taxes be increased in the upcoming budget? When we raised these issues with the CEO of White Oak Capital AMC, he clearly said that these are genuine concerns, but there is no correct answer. Only predictions can be made about them and all predictions are based on guesswork.
The question is, what should we do in such a situation and what kind of expectations should we have?
Sharp correction expected in 2025
The stock market has seen a lot of ups and downs in the last few years and this cannot be seen as a benchmark for the times to come. After a sharp fall in Nifty in March 2020 due to Corona, it saw an increase of 200% in the next 54 months (4.5 years). This year also a sharp decline was seen in the market. There has been a 10% decline in the stock market in the last 3 months. There could be many reasons for the decline – slowdown in earnings, selling by FIIs, profit booking in the market due to overvaluation.
Shyamali Basu, associate partner at Sapient Wealth, said, ‘Investing in equity is like starting a business, where there will be good and bad cycles. In good times, your returns will be more than your hard work, while in bad times, despite all your efforts, the results may not be good. A practical way to look at the market is to expect growth to be similar to the nominal rate of growth (inflation and GDP). However, market returns are never the same. We have to see periods of tension and celebration.
investing at the right time
Midcaps and smallcaps were being ignored during 2018-20. However, their valuations were quite impressive. Today these shares have become very expensive, but investors are chasing them. Ashish said, ‘In the last 3 years, investors have entered midcap and smallcap a lot and their portfolio there may become overweight. Actually, the risk is not in the market, but in your portfolio. Risk can be reduced by bringing your portfolio to the center of the market.
Shyamli Basu’s advice is as follows: ‘At this juncture, we recommend low-risk hybrid funds to clients. For others, it would be better to invest in large cap based funds, which are better in terms of valuations. For young SIP clients, we recommend a mixed portfolio of largecap, midcap and smallcap companies. ‘If you are buying shares, make sure you have adequate margin of safety.
The next year is going to be very difficult, but this is not the time to get out of the game. Also, there is no need to understand the market only from the perspective of tremendous returns in the last one year.