
Five reasons why markets are falling, such headlines are common nowadays. A culmination of factors is attributed to the recent 1.3 per cent Sensex crash. Even a 1000 point volatility is too hard to fathom for investors who have been used to seeing their portfolios in green for the past few years.
One of the factors attributed to the fall was the slowdown in GDP growth in the September 2024 quarter. This was reflected in the less than expected corporate earnings growth of the quarter. But wait, when the GDP data was announced for the 2nd quarter, markets went up for the next one week in November and continued the climb till the second week of December! The markets took some time to discount the weak earnings season of September quarter.
Conversely, in the past week, some positive data has come which the markets totally overlooked and still tanked. IIP data (Index of Industrial Production) for the month of November has shown a y-o-y growth of 5.2 per cent, with infrastructure and consumer durables rebounding to double digit growth. In fact, the IIP growth y-o-y started recovering from the month of September after marginally dipping in August. Inflation too appears a bit under control in November and December. The December data came just 2 days back. I am not suggesting this could translate into a full-fledged recovery.
The point to drive here is that with easy access to real time news pouring in every minute on channels and social media, markets have become increasingly unpredictable. I fail to understand how markets would react or overreact or not react to every bit of information.
As an adviser, I am more interested in what the actual macro and micro data looks like to get a fair idea about how things are fundamentally and whether there is any cause for long term concern. For a retail investor, the least he or she can do is continue to invest in a disciplined manner in the markets. Periodic downturns are the best opportunity to enhance overall portfolio returns over the long run. The typical mistake which investors should not repeat is stopping their investments now or waiting to catch the tail of any market downfall. Greed dominated the markets and investors continued to buy when valuations were absurd. Now that there is a course correction, investors should not stop or wait. Because predicting the markets is futile!