CIO - Equity Investments
Reliance Mutual Fund
In continuation of what we had mentioned in our earlier reports, the volatility across world stock markets is not likely to stop India’s resurgence as the best market in invest in. Though the country’s stock markets have reacted to global cues in the last few weeks, the underlying economic conditions and the favourable environment are likely to negate any significant slowdown.
We agree that the market seems jittery and investors will be wondering whether this is another global slowdown, but our research indicates that the bear phase is temporary and will pass over soon. In fact, even as we write this, markets around the world are recovering and moving back on track.
Some pointers to be kept in mind while looking at the current markets:
1. The sharp correction is more of a China-led phenomenon
2. Commodities are under pressure and economies that are commodity dependent will be at the centre of this temporary slowdown
3. Though emerging markets with fundamental problems may be hit harder than others, the correction will help them in the long run to emerge as stronger, nimbler players
4. US and Europe are back on the growth track and are not likely to slow down
5. The recent oil price decline is helping most major economies, including emerging markets
6. Despite the slowdown in manufacturing, the service sector is performing well globally and even in China
7. Interest rates are near their record lows and central banks are likely to continue their monetary easing policies to help their local economies
In an Indian context, the events over the last few weeks have reinforced its position as the place to be invested in. India has been back on the strong growth track for over a year now and this recent slowdown has only served to put the spotlight back on its viability as a sound investment destination. In fact, we have noticed positive trends across all key areas including reforms, demographics, growth rates, productivity levels, savings, etc., which substantiate our belief that India is looking at a strong bull phase.
Our research shows that every time the Indian market has corrected or taken a dive, it has emerged stronger than before. Over the last 15 years, there have been three bull phases, including the current one, and each time the markets have regained their peaks within a short time. Moreover, the 3 year returns after every fall have been phenomenal to say the least.
We reiterate our advice to investors to take advantage of the correction and continue building positions. Volatility is a regular feature of any stock market and should not be viewed negatively. It presents opportunities to build positions in some great companies and also increase overall equity allocation. Also, the positive trend in reforms, falling interest rates and low oil prices, among others, are beginning to make a mark and we believe they will increasingly support growth opportunities in the long run.