“You need to know the market's going to go down sometimes. If you're not ready for that, you shouldn't own stocks. And it's good when it happens.” -- Peter Lynch.
The legendary fund manager has spent many decades in the markets to know that corrections are part of a normal market cycle and it is not bad as it allows investors to buy good quality stocks at cheaper valuations and with a long-term perspective.
The adage has stood the test of time and the current times have, once again, brought it to the fore.
The latest poll of market experts by Moneycontrol has revealed that a large majority believes that the Indian markets are currently “expensive” and a further 10 percent correction from the current levels could be expected – some even predict a fall of around 20 percent – even as the benchmarks Sensex and Nifty are already down nearly five percent from their respective highs.
More importantly, a majority – 52 percent to be precise -- believes that the ongoing geo-political concerns due to the developments in the Middle East region combined with the renewed competition from China – following its stimulus strategy – are more worrisome factors than any other event seen in the post-pandemic period.
The poll saw more than two dozen market experts participating with the respondents ranging from analysts to traders and from fund managers to advisors spanning across intermediary categories including broking firms, mutual funds, portfolio management services (PMS), advisory platforms, and alternative investment funds (AIFs).
As many as 64 percent of the respondents said they believe that the Indian markets are currently expensive with the balance 36 percent calling it reasonable. Interestingly, none chose the third available option of ‘cheap’.
In terms of specific risks currently facing the Indian stock markets, high valuations with 44 percent votes emerged as the biggest risk, followed by earnings disappointments with 36 percent votes and geo-political risks at 20 percent.
“Indian markets have run up way ahead of what it should have and there would be a cooling period now. It was among the best-performing ones in the last year but it was also because it was alone in the race,” said market veteran Shankar Sharma to a source recently.
“Now China has entered the fray and it is a two-horse race. China can race ahead also because it has a long bear market. While the Indian markets are structurally strong, this is not the time to get too aggressive,” he had said.
Incidentally, China has been in the limelight ever since it made a slew of announcements to boost economic growth and restore confidence in its financial markets. Among other things, the People's Bank of China (PBOC) lowered the key interest rate while also reducing the Required Reserve Ratio (RRR) for banks by 50 basis points, injecting around $142 billion into the economy.
To revitalize the stock market, around $71 billion swap facility has been launched for brokers, alongside refinancing options for listed companies to support share buybacks.
Last week, a source reported that China and Hong Kong saw their market capitalization surge by over $2 trillion and $1.2 trillion, respectively in just 15 trading sessions following a strong rally, primarily driven by Beijing's stimulus measures.
Meanwhile, the market poll further revealed that nearly half of the respondents – 48 percent -- expect that Nifty to end between 25000 and 27000 by the end of the current calendar year.
Another 32 percent of respondents said the benchmark could end between 23000 and 25000 while 16 percent predict it to end below 23000. Only a small four percent said that expect the Nifty 50 to end above 27,000.
This assumes significance as a high 72 percent of the respondents said they expect a further 10 percent correction from the current levels, with another 16 percent pegging the fall between 10 percent and 20 percent. Further, 12 percent of the respondents expect a correction of over 20 percent from the current levels.
In terms of the deployment of cash shortly, most respondents – a high 76 percent – said they would look at large-caps with only 24 percent ready to bet on small-cap or mid-cap stocks.
This is interesting as till recently, a large section of investors was betting big on the small-cap and mid-cap universe with even mutual funds witnessing record inflows in schemes aimed at this universe.
But, with sentiments taking a hit and the outlook also turning a bit bleak, it seems that investors and experts are now looking at the relatively safer large-cap segment to deploy cash and stay invested for the longer term.
In the end, there is only one thing to remember especially for long-term investors.
“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices,” said the legendary Warren Buffett.
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