There are two views in the markets. One is that the markets have entered a long phase of a bear market with low recovery possible over the next few months and there is still some more pain left and the other is that the markets have gone through a lot of pain in the past six months and its time for the bull run to resume its upward leg.
I for one believe that we are still very much in the decadal bull run which started post Covid though Ramesh Damani likes to date this since September 2019- with the corporate tax cut and I am of course nowhere close to his wisdom. Anyways, I believe that our markets have had two serious downturns since Covid bottom- one beginning October 2021 when indices fell 20% from 18100 to 15800 and two year nifty return was zero. The second is the current phase when we had fallen a little less on the nifty but broader marker bloodbath has been massive.
With one year nifty returns already hovering around zero, it is very much probable that our nifty might take some months to retake the 26k top but it is more probable that our markets rebound and take off the losses which we have seen in the past six months quickly.
Ive to be clear on a few points- everyone is a buyer of BSE at 6000 predicting 8000 and a seller at 4000, predicting 3200 or I heard someone on TV at 2200. It’s okay in ether ways because a lot of people in markets are speculating. I am in the business of slow compounding with reasonable expectations of returns with associated volatility. For me, BSE at 6000 is a moment of joy and at 4000, a point of despondency but, I neither sold at 6000 nor am I selling at 4000. If a stock corrects 40% in 12 trading days, I get hurt on my notional portfolio valuation but beyond a point, it is immaterial. The fancy words like drawdowns, booking profits etc are only valid in hindsight.
When a stock makes fresh lifetime high at the peak of a bear market, everyone and their uncle was ultra bullish giving targets of 7000 plus. In three weeks, the targets are back to somewhere below 3000. What a credible source of investment wisdom!
This only indicates one thing- we went from extreme greed to extreme panic in three weeks! The same thing happened with Trent, Kaynes, Dixon and now even Zomato. Not that I am a buyer in any of them but people were lining up to buy Trent at 7500 and are looking at it with disdain at 5000! The same facts are being used to sell which were earlier used to justify ultra rich valuations.
It explains why most people who are in markets do not make real wealth. When you basically try to justify your opinion based on price movements, you are a speculator. And speculators make money on some days, lose on others and sit out on the next day and enter the next and so on and so forth. And, the charts! I have nothing against the charts because they do have some real value in terms of market positioning. The chartists, on the other hand are a dime a dozen. Every other person begins to talk of a rising candle in a bull market and eventually gets that candle home on his way down when the markets turn.
I am a student of market psychology. I was ultra bullish on markets and remain so but did feel a lot of scare when the drawdown happened. I generally am not affected by a 10-20% portfolio drop but a 35% drop is scary. On the other hand, as a student of market, on days when I am scared, I know the panic has peaked. When you want to further sell a stock which has already corrected 40% in two weeks which was happily a buy at 80 P/E 12 days ago since the earnings were going to compound massively, it signifies extreme fear.
And the trigger? NSE shifted its expiry day to Monday. I mean please give me a break! If a stock should drop 40% because of one action by a competitor, then if it also changes its expiry to Wednesday or to Thursday, will it go up 40% in three weeks? No, right! People need some reason to panic and a lot of selling happens due to other factors- someone wants to make up for a loss somewhere else, somebody had a margin call, some fund faced a redemption, etc.
My point is that in markets, these things happen. As you progress further in your investing career, prepare yourself for a lot of 20-30-40% drops every second year. This is what you have signed up for. If you want to make 50% in a year, be ready to lse 30% in a month also.
Here is what I am doing.
I have reiterated it consistently that you are here to generate wealth and not to beat an index. For individual investors, the absolute amount of capital which they make is all that matters.
You should buy only what you can understand and be very limited in your holdings. Unless you take a concentrated position, you don’t really make that much money is a lesson I have learnt in this market. Also, the money which you finally have after a bear market is your true net worth! Peak bull market valuations are only a good reference point in life. Masayoshi Son went from a net worth of close to $100 B to $2B in a matter of one year! Meta fell 50% almost overnight; Nvidea is down 30%, Netflix fell over 70% a few years back, Tesla is down 50% currently and falls 20-30% every now and then. Does that mean if you sold any of these, you would ever make that much money ever again in your lifetime? And these are the biggest companies in the world. And we in India do not have anything close to them yet.
Anyone who sells out their winners because it’s too high or falls 50-60% after a massive run actually loses a lot of money in a long run. Meta was available at $90 a few years back when nobody touched it and it recently went up to $700! You have had a seven bagger in the fifth largest company in the world in less than three years!
We have to understand that now our markets are so deeply liquid that when someone has to sell a large position, they can do that in less than an hour or a day at max. All of this took multiple weeks or even months a few years ago since our markets weren’t that liquid. Now you can sell 10000cr worth of shares on the market in a single trade. So whenever the fall happens, it will be brutal and you won’t have a chance to blink. Like IndusInd bank recently.
This my friends is a sign of strength. Our markets are now as good as the best in the world in terms of liquidity and trade technology. So whenever such fall occurs, look at them through the prism of opportunity.
I might have felt deeply scared but eventually I did what I do on these days- add to what I already own and let the markets do their thing. BSE for me is a hold till at least it does Rs. 5000 crore in revenue and close to 2000-2500 crore in PAT. After that, I will see what the situation is like.
Here is what I am seeing-
I can’t believe that the Indian AMC stocks are trading at these levels and they are to me a screaming buy. They are currently in the neglected zone and generally that’s where the maximum juice is. Anyone who thought that the Indian retailer will give up on mutual funds must have been shocked to see almost 26000 crore SIP figure for February 2025. This is an irreversible unidirectional move which will define the decade we are living in ten years from now. Our MF industry AUM is now close to $700 Billion. US MF industry AUM is close to $34 Trillion, which is 1.6x of their GDP. Out number is one sixth of our GDP. In the next few years, even if it moves to 0.5x our GDP, the number will be closer to $2.5-3 Trillion since the GDP is also rising. At that rate, even conservatively, the revenue of our mutual funds companies will be close to $25-50Billion with PAT ranging from close to $10-20Billion dollars. At that rate, the industry should then be valued at something like 350-400 Billion. Right now, the entire industry is valued at less than $65-70 Billion. It means that the stocks should go up somewhere between 5-10x without doing much.
Add to that a lot of rising dividend yield since these companies are cash generating machines. This is my clarion call to buy 2.0!
Disclaimer- The views expressed in this blog are personal opinions and are shared for educational and informational purposes only. They should not be considered as financial, investment, or legal advice. I write primarily to document my own learning and thinking process. I am not a SEBI-registered investment adviser, research analyst, or financial influencer, and no part of this blog should be seen as a recommendation to buy, sell, or hold any security. Please do your own research or consult a qualified professional before making any financial decisions.
Life is all about Compounding! 