All of us want to know if we are at the end of the lockdowns. From my mother to my wife to my children, there are many questions... will places of worship open? when will schools open? what is allowed, what isn't? Social media is rife with pictures thronging the streets. While some worry about the possible infection rate rise, others are saying it is signs that the economy is getting back on track quickly. The sharp rebound in the past week clearly shows what the market is thinking, at least for now!!
Indian GDP for the fourth quarter came at 3.1% ahead of the 2.1% estimated by economists. What I want to know is how are the economists arriving at their estimates, given that the last few days of the quarter were under a nation-wide lockdown!! According to Moneycontrol, the March quarter GVA (Gross Value Added) growth came in at 3%, buoyed by agriculture and government spending. If we exclude agriculture, GDP growth falls to 2.5% and without govt. spending it falls further to just 1.1.%.
If this were to be caused by just a few days of lockdown, we can only imagine what the June quarter number will look like.
Markets, however, work on future earnings and here, the markets seem to be forward to FY 2022!! After all, to regain pre-COVID numbers, might take 2 years. What is interesting is the polarization in the markets with certain companies trading at expensive valuations while in many others the Price to Book is very low, at levels not seen in decades. We are already seeing this shift in Pharma today, a sector that was out of favour till just recently. What other sectors will benefit from the turmoil - will it be rural-focused companies, and/or chemicals.
What should an investor do, you ask?
As we have consistently said, investments are made, according to ones' goals and risk appetite and never done based on where the market is heading. The whole point of investing in a mutual fund, either through an SIP or otherwise, is to leave the job of stock selection to a great fund manager and the fund selection to a trusted advisor.
Let's get a few things that we don't know, out of the way
We do not know anything specific about the future.
We do not know when the market will correct and how much it will correct by.
We do not know how suddenly any of that could happen.
We do not know if it has hit a bottom or for that matter the top!
All that we know, with a high degree of confidence, is that sustained over years, equity investments will bring great returns, coupled with great volatility. We identify a few funds that suit your needs, we monitor them closely, we consistently review your asset allocation
and don't bother about market crashes.
The only way to befriend this combination of great returns and high volatility is to keep investing continuously, regularly and steadily, without interruption.
Source: Moneycontrol, Value Research & CNBC TV18