Current Market Volatility Is An Opportunity To Strengthen Your Portfolio

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Current Market Volatility Is An Opportunity To Strengthen Your Portfolio
Vinod Gupta, Managing Partner, V R Investments
OLM Desk - 04 May 2022

Just when the Indian and the global economy seemed to be coming back on track after close to two years of Covid-led disruption, the Russian invasion of Ukraine brought new uncertainties to the fore.

This geopolitical development led to prices of essential commodities, like crude oil and natural gas, shooting up. It also added to inflationary pressures across the globe, and India being a net importer of oil and gas, fuel prices have sharply gone up after the Russian invasion so far.

Fuel being central to industrial operations and supply chains, there will be cascading inflationary impact on other commodities and services, too.

Inflation has led many countries to increase their interest rates. In some situations, this also leads to an outflow of capital from developing markets, thus, fuelling turbulence in the equity markets.

Additionally, the spread of coronavirus hasn’t come to an end yet. While the ‘third wave’ of the virus was not able to create significant trouble in India and elsewhere, pockets in China, Hong Kong, Singapore, and South Korea are again witnessing an increased number of infections as of early April.

These factors, among others, have led to the equity markets behaving in a volatile manner. For the millions of new retail investors who entered equity investing in the past two years, when the markets were scaling new heights every passing week, this could be a rude shock.

In such a situation, it is crucial for investors to understand not just the reasons behind the volatility in the markets, but also the fundamentals of the Indian economy, and accordingly, how they should proceed with their investments.

Indian Economy On A Strong Footing

There is no denying that the Russian invasion of Ukraine and its impact on inflation in India is real. It will dent the economic growth to some extent at least. Even the Reserve Bank of India has taken cognizance of the rising inflation in its latest monetary policy review meeting.

That said, the fundamentals of the Indian economy are strong. The policies that the government has adopted over the past few years, especially on infrastructure, manufacturing, as well as social welfare fronts, are expected to start showing impact soon.

Production-linked incentives and lower corporate taxes, along with the push on infrastructure will boost job creation, which will enhance incomes and spending, thereby accelerating the pace of economic activity. Even the credit uptake, which indicates business activity, has come out of the slump in 2021-22 and is gaining further momentum.

Thus, it is not surprising that economists are expecting India to deliver economic growth of over 8 percent in 2021-22, and slightly lower than that in 2022-23 and 2023-24.

What Investing Strategy Should You Adopt?

There are several silver linings despite the dark clouds of global uncertainty and inflation. Most concerns are global and have an external origin from an Indian point of view; there is nothing internal that could act as an economic dampener. Hence, it makes sense to put your money behind the Indian growth story. At the same time, investors should be cognizant of the developments and adopt some caution, especially in the first quarter of the new financial year ’23.

The strong fundamentals of the Indian economy translate into long-term growth as well as investments for the economy. At the same time, near-term turbulence means there could be short-term dips in the market. Accordingly, buying the dips is one strategy that investors should actively consider. But for those who might be short on time or energy to actively pursue this, systematic investment plans (SIPs) would be the best option. Having an SIP in equity funds in the current market will ensure that even if the market witnesses some correction, you will be able to benefit in the form of a lower buying price.

All said and done, Indian investors should make good of this opportunity to create and/or strengthen their equity investment portfolio. As the dark clouds dissipate in the next few months, your investment discipline and faith in the India story will deliver fruit in the form of good returns on your investments

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