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Ventura Wealth Clients
4 min Read
Piramal Enterprises

In the short run, the market is a voting machine but in the long run, it is a weighing machine

Benjamin Graham

Indeed, markets have been behaving like compromised Electronic Voting Machines (EVMs). Whichever stock you pick, it lands in a bear hug — an experience that many share nowadays. Markets are falling like there’s no tomorrow. Blood on the street, sure, but does any investor have the guts to step in at this point?

Smart money never loses its sight on the market, even when many investors lose patience and throw in the towel.

What’s causing the panic selling in the market?

If bilateral trade tensions between China and the US were not enough, now two oil giants—Saudi Arabia and Russia have locked horns to grab market share and price control of the oil market. Some experts are calling this the end of OPEC+. Any massive fall in global energy prices is considered a bad indicator for global growth. On the other hand, the fear of Coronavirus is spreading faster than Coronavirus itself, adding to the worries of investors.  Back home, instances such as Yes Bank have been sentiment dampeners.

Collective result of all these events has constrained policymakers, driven markets into a nosedive and frustrated and investors, leaving them clueless.

How badly will the growth be affected?

International Monetary Fund (IMF) expects the global growth for 2020 to be lower than 2.9% recorded in 2019—which would make it the lowest in the last 10 years. In 2019, many markets across the globe (especially amongst the developed markets) posted their best show since 2009. MSCI World Index (which tracks the performance of major developed markets of the world) generated 27.7% returns in 2019. MSCI Emerging Market Index fetched 18.4% returns in the year gone by.

Therefore, we must understand, the present fall in global equities is coming on the backdrop of sky-high expectations from the global economy. Now that the hopes of “high growth” have gotten dashed badly, the pendulum of market sentiment has swayed 180 degrees in the opposite direction—a classic case of gloom replacing boom.

Indian markets are no exception to this.

Are fears overdone? Well, nobody knows at this juncture. But as far as Indian markets are concerned, the data suggests something interesting that you should know.

To your surprise, 111 stocks of Nifty 500 have generated positive returns over the last two months (since the Coronavirus episode began). Of these, 82 generated positive returns on a 1-year timeframe as well. This suggests that they have been performing consistently for quite some time now. Interestingly, there are no private sector banks, leading IT, auto and Infra names in the list of gainers.

Oasis in the parched bear land…


Bear markets

Interesting findings…

Companies that have generated double digit returns for their investors on 2-month and 1-year timeframes have either reported impressive numbers in Q3FY20 (as well as in previous quarters) or they are expected to benefit under the changing business environment.

For example, retailing companies such as Avenue Supermarts and Trent have reported impressive growth, despite a slowdown in the domestic economy. So is the case with consumer goods companies. On the other hand, some of India’s chemical manufacturers with a significant presence in their product areas globally, are expected to benefit from the emerging trend of evolution of supply chain away from China.

Moral of the story: Companies reporting impressive growth in an otherwise dull and boring business environment can generate stupendous returns; no matter how firm the bear grip is around the markets. Ditto for companies whose future growth, according to the market, isn’t fully captured in the stock price.

Should you review your portfolio at this juncture?

If you are a long-term investor, you may consider reviewing your portfolio at a time when there’s blood on the street.  While you revisit your portfolio, you may ask yourself three questions:

  • Has the changing business environment affected the company’s business model?
  • How strong is the company’s financial muscle to withstand adverse macroeconomic conditions?
  • Is the company run by dependable management?

Answering these may help you know which ones in your portfolio have perhaps run their course and which ones you should add. This is a process of ignoring the voting machine and paying close attention to the weighting machine—which smart money always does.

More often, bear attacks—like the one which is underway—beget new winners.



You May Also Like to Read: Will India attract higher investments from Sovereign Funds?

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.


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