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Long Term Investors Can Make Money From Present Market Conditions

Monday, January 25, 2016
By Harsh Kundnani

Panic prevails on the Stock Markets. However, as the dust settles down and rationality once again prevails, the stock markets will take into consideration the fact that the fundamentals of India have only changed for the good and thus any rational long term investor will make money in such a market

There is an old adage, quite famous amongst the investors, that the stock markets are primarily driven by two very innate emotions: Greed and Fear. It has been observed that most investors or speculators become greedy when they profit and experience fear when faced with major losses. The feelings hinder with their practical thinking, which is the major reason that very few people in the stock markets actually make money.

Indian investors currently face a similar situation; with the global scenario looking grim. With the possibility of the ongoing global crisis having a major spill over on the Indian markets, there is a sense of despondency amongst investors and speculators alike. Fear, being the predominant sentiment as of now, is driving out herds of investors from the stock market, who are in no position to think rationally.

But, the situation is not as dire as it appears to be. As a matter of fact, the stock markets have paid no heed to the positive news developments related to our home-soil, while completely relying on global cues for its daily movements. Let’s have a look at some of the events which have been positive for our economy in the near past:

  • Albeit the fact that reforms are long overdue, the truth is, they are slowly and steadily being implemented. Major reforms such as GST, Land acquisition bill, PPP model are in the pipeline to being implemented to attract investments in the infrastructure sector. This will give the economy a major boost in the long term.
     
  • The Make in India initiative is picking up pace as India has witnessed FDI inflow to the tune of $31 billion in the first half of 2015, overtaking China and US as the top destination for Foreign Direct Investment. As the initiative gains further traction in the years to come, we cannot even fathom what it holds in store for India at large.
     
  • As the Crude Oil prices have plummeted from a levels of $120 a barrel to sub $30 a barrel, which was last seen only in 2003, India stands to gain almost $60 billion a year which is roughly equivalent to 3% of our current GDP. This will lead to lower inflation, lower burden of subsidy on Oil companies such as ONGC, HPCL, BPCL etc. and providing a leeway to the Government of India to utilise such money Gross fixed capital formation.
     
  • The Quarter 3 Corporate Result season is upon us as some of the companies have come out with their results while the rest of them are just around the corner. Although one cannot term this quarter as an all-round stellar performance for the companies, some of them like Infosys, L&T Finance, Spice Jet, Mahindra Holidays have declared commendable results.
     
  • The Infrastructure sector, which is a key driver of the economy, was in the limelight in 2015 and the trend is bound to continue in years to come as well. India has been witnessing several exciting events destined to change the landscape of Indian Infrastructure such as the plans of the Indian government to build 100 smart cities, investing US$ 137 billion in its rail network over the next five years and highway projects worth US$93 billion. Several prominent International corporations such as BNP Paribas, Carlyle group have procured stakes in Indian infrastructure companies while countries such as France have partnered with India to develop smart cities in India itself.

By no means does India not face any headwinds; as factors such as Cross-currency volatility, subdued global demand and weakness in International commodity prices continue to plague the market. However, as the dust settles down and rationality once again prevails, the stock markets will take into consideration that the fundamentals of India have only changed for the good and thus any rational long term investor will make money in such a market.

(A Chartered Accountant By Qualification, Kundnani is a Blogger and comments on Eco-Political Issues)

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