It’s no secret that the past 12-18 months have been challenging for the Indian Stock Markets. Due to geopolitical tensions and many other factors, financial markets around the world saw significant declines which make many investors worried.
For us, who invest for long term, it is an accumulation phase. Here we get companies at cheap prices and you will be able to take advantage of dollar-cost averaging to accumulate shares at lower prices. Over the long term, this can lead to significant gains when the market eventually recovers.
If you’re looking to start investing then this is the right time to invest, despite the fact that the markets gave no returns in the past year. You might consider the following points:
(i) Historical Data
There has been many times the markets gave negative or no returns.
It’s important to remember that the stock market goes through cycles. While there may be periods where the market doesn’t perform as well as investors would like. Historical data shows that the market tends to perform well over the long term. In fact, Nifty 50, a widely used benchmark for the Indian stock market, has returned an average of approximately 14.6% per year over the past several decades.
(ii) The market is cyclical
One of the most important things to understand about the stock market is that it is cyclical. There are periods of growth, and there are periods of decline. While it can be painful to endure a down period, it’s important to remember that this too shall pass. Historically, the market has always rebounded from downturns, often delivering impressive returns in the process.
(iii) Better Valuation
Nifty current PE (Price to Earning) is 20.87 which is way below its long term average of 24.2, so it is believed that it is a good zone for the accumulation of good companies as they are trading at a discount.
(iv) Opportunities during Downturns
In times of market downturns, there may be opportunities for you to invest in high-quality companies at a discount. When stock prices are lower, investors may be able to purchase shares at a more attractive price.
In the above graph you can see that you are getting more returns in Scenario II & III compared to Scenario I as you are getting NAV at low prices which will help you to boost your return.
Moreover, in the downturns you should increase your investment amount, which will help you in a long term. As the market recovers, these investments may see significant growth.
(v) Time is on your side
Another key aspect of investing is that it requires a long-term mindset. If you’re investing for retirement, for example, you likely have many years or even decades until you need your investments. That means that short-term market fluctuations shouldn’t cause you too much concern. By sticking with your investment strategy over the long term, you’ll give yourself the best chance of achieving your financial goals.
Let’s look at that with an example if you have invested in S&P 500 from December 2005 to December 2020. You have get an annual interest of 9.88%, if you missed the 10 best days your returns would have been 4.31%, 0.88% if missed 20 best days, -1.88% if missed 30 best days and -4.26% when missed 40 best days in the market.
Only by missing the couple of days could have a significant impact on your investment portfolio.
(vi) Comparing Equities with Fixed return instruments
When markets give negative or no returns people start comparing it with fixed returns instruments like FD that investing in FD is better than investing in equities. Below is the table that shows return when invested in Nifty 50 vs FD. Investing in equities doesn’t guarantee you to get a fixed return but when you invest for a period of time or goal like child education, retirement, etc. it will beat the returns of any fixed return instrument.
However, historical data shows that over the long term, the market tends to perform well, with Nifty 50 returning an average of approximately 14.5% per year over several decades.
In conclusion, while it can be frustrating to see no returns in the market during the accumulation phase. You have time on your side, and by continuing to invest regularly and take advantage of opportunities to buy low, you’ll be positioning yourself for success over the long term. By focusing on the power of compounding and staying disciplined in your investing strategy, you can build a solid foundation for your financial future.
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References: Industry’s Publications, News Publications, Brokers report.
Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.