There will be a Sunrise after every sunset. So is for Equities, every time a crash gives birth to the next BIG RISE.
Let’s first understand in simpler words what is happening: During Covid global economy came to a standstill. Like medical fraternity worldwide were trying to save mankind, so were the global central banks were trying their best to keep the global economy afloat. In the bid to save and support global businesses they made borrowing for Consumers/businesses Ultra cheap by lowering interest rates and pumping in excessive money into the system. Technically world economy was in ICU for last 2 years running on drugs (Easy Money). And it worked… Bingo. And now global Economy is back on track, largely, they are taking away all the support it has rendered.
Moderate Inflation is good, It signifies Economy is coming out of ICU. Key Interest rates which were dropped drastically are going back to its normal levels, but since we (Markets) so addicted to run on drugs, It always find it difficult, get nervous initially, during the scaling back of Interest rates. And off course we have a War which further compounds the issues.
Historically, since 2005: (Source ET)
- 6 months after the Rate Hike cycle Began: 20 out of 21 times NIFTY gained between 3%-40%, remained flat Once.
- Quantum of Pull back from here needs to be seen, but it’s certain that markets eventually will rise back to it’s peak and further. Fundamentally there is nothing wrong with the Economy, but just a cycle (low Interest rate) has reversed.
- FIIs who have been net seller for some time eventually can’t ignore India which Fastest Growing economy Large Economy.
- The Big Question: Are we at the bottom? May be not, markets are still reacting to negative news so some further fall can’t be ruled out. But we need to understand, as we go further lower:
- Equity becomes more
- Higher Returns on Pullback: A 20% fall results in 25% returns on rise back.
- Probability of it going further down reduces. The higher you fall from; more hurt you are.
- Asset Allocation will play a Very important role. Tactical equity allocation will be the key.
- Most Importantly, Investor who have bought at lower levels can expect higher Returns in Shorter Time frame.
We have built selection of Top Quartile Equity Funds which will benefit he Most from Market scale back. Drop in a email at hello@snma.in to get its details.