Indian Equity Markets Update

Dear Friends,

                             As I am writing this blog the Sensex has moved up by more than 400 points and Nifty by 130. This is subsequent to the fall of Sensex closing below 24000 and Nifty by 7250. Why are the markets behaving in a bizarre way with high volatility?

No one knows the precise answer as that is how Stock Markets around the world behave and you can attribute only a few factors to it. 3 key reasons that are attributed are:

  • China Degrowth
  • Fall in commodity prices to 10 year lows (including Crude Oil). Even this has a correlation to the 1st  reason of China Degrowth as China was one of the major consumers of commodities
  • Rumours spreading that that we are trending towards another 2008 kind of crisis across the world


If these are the reasons and stock market pundits across the globe are able to convincing say so, most of these people would sell their equity portfolio and move to a cash/ debt position so that the overall returns of their portfolio are optimum (less downside). The reason that it has not happened is no one is sure about it and that is the nature of Equity Markets. This is akin to buying gold or real estate knowing well that the price is going to fall.

A significant number of PenguWIN clients are first time equity investors who might not have experienced the gyrations of equity market. Hence this blog is mainly for their consumption and people who know or experienced this, please excuse me. I happened to attend the Chief Investment Officers (CIO’s) market outlook of several leading fund houses in the last 1 week and some of the messages are embedded in this blog.

Sensex moved from 3,390 to 20,823 between Jan 2003 and Jan 2008, during the great Bull Run. i.e more than 6 times. Now comes the interesting point: During this period, there were 11 occasions when Sensex corrected by close to 10% and 2 times by close to 25%. The reason why I am quoting these facts is that, markets tends to be volatile and unpredictable like the current scenario and this is not a new phenomenon. 

Volatility is inherent to all Asset Classes

Until a few years back, 2012 to be precise, most of the investors in India were of the opinion that money invested in Gold and Real Estate can move only in one direction – Up! In 2012, gold prices went up to Rs. 3000+/gram. If we factor inflation to this (7%) and taking a time frame of 3.5 years, the gold price should have been 3800/- per gram today if there was no price raise and purely adjusted for Inflation. The reality is that Gold is trading around 2500/gram.

The case of Real Estate prices is quite similar. The prices have remained the same in most part of the countries whereas if you factor in Inflation of 7% it should be 26% more than 2012 prices.

Most of us did not sell our Gold nor our houses. We think that if not now, in future the prices will go up. But when it comes to Equity Markets, the investor behaviour is different. Retail investors react in a manner where, when they should be investing more when valuations are attractive, but in reality they sell and exit making huge losses, and say that they burnt their fingers investing in Equity.

When companies grow and the profits increase, the stock prices should increase logically. A good example is Cognizant stocks which has grown at a 20% CAGR since they got listed in 1997. But does it always go up. The answer is no as it took the pounding on several occasions. The same is the case with Infosys, TCS, and Microsoft etc.

Fundamentals of India are strong

China, Brazil, Russia, Japan, South Africa and pretty much all the countries have issues in their fundamentals like GDP growth slowdown, recession due to oil prices and commodities. The only 2 countries that seem to have these going in their favour are US and India.

India GDP is growing at 7.5% which is significantly higher than other countries, our Fiscal and Current Account are in control, and Government has saved 5 Lakh crores per year due to oil lower prices. This money can be used for Country’s development.

An interesting data point that I would like to share is, in the past decade, Indians have imported around $221 billion worth of Gold, Silver and Diamonds while the money that has come in through FIIs in only $190 billion.  The impact of FIIs pulling out is clearly evident but the good thing is from last year retail investors have started investing significant amount of money in Indian Markets and this has helped balance the FII sell-off to a great extent.

So the question is whether our markets continue to be heavily dependent on FII flows? The answer is, no from a long term perspective. The government has been able to push the Pension and Provident funds to invest in Equity markets which the workers union have been opposing in the past. It is not possible for government to take a hit by these players clamouring for higher interest than the market determined rates. Please note that Government has already decided on lowering Post office deposits, PPF etc and it will happen over the next few days. Today I read an article that said the interest rates would be rest every quarter (like oil prices) to coincide with market determined rates. The investment from these channels is about 5000 crores this year and is estimated to be 10 Lakh crores in the next 5 years

Some of our clients were keen on reading the Quick Updates from PenguWIN in our website itself rather than going to our Facebook page. So we have decided to provide quick updates both in Facebook page and a separate page in the website under the blogs menu. 

Do not ignore Asset Allocation

Almost all the Investment heads (CIOs) of the AMC (Asset Management Companies) emphasized this point to get the optimum returns from the portfolio. The detailed write-up of Asset Allocation can be read from which we had already published. Just to refresh our memories, Asset Allocation is maintenance of agreed % of different Asses classes, periodically, every calendar year or financial year. Financial year is better as the person would rebalance the portfolio after March and the tax implications can be planned with a year to go.

Let’s just consider Equity Mutual Funds, Stock options, Debt Mutual funds, EPF, Bank FDs and Postal Deposits. Let’s assume that the investor’s risk tolerance and capacity are assessed and a 50:50 Equity: Debt is arrived at. By March 31st the value of the portfolio in terms of Equity and Debt are determined. Let’s assume that Equity portfolio got reduced to 45% and Debt portfolio increased to 55%. The investor needs to sell off the debt to an extent of 5% and invest the amount in Equities. It may sound difficult to sell the portfolio which has done well and reinvest the money in a portfolio that hasn’t performed well. But for optimum returns from the portfolio this is very pertinent.

During these testing times please reach out to your Financial advisors (me in case of PenguWIN clients) so that you don’t take decisions that will impact your wealth in the long term

 <Blog # PenguWIN 1038 – Equity Markets Update>


  1. Very balanced view of what we have to do. Thanks again Sendhil.

  2. Sendhil very timely and much needed post. This is another opportunity for people who were on the sidelines when Modi government came into power but could not invest. if the time horizon is 3 year+, this is a good opportunity.

  3. Good and balanced view on retaining stable asset allocation. Thanks Sendhil.

  4. Very useful and recomended information in Right times.Thanks Mr.Sendhil.

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