By Sanjay Matai

The last three to four years has been a roller-coaster ride for the equity market. From a level of 3000 in May 2003, the Sensex doubled to 6000 in mere seven to eight months by January 2004. With political party, Bharatiya Janata Party losing power in May 2004, the market went down to a level of 4500 -- a 25 per cent drop in just four to five months. But within six months, the market recovered and the Sensex again touched 6000 before the year-end 2004.

Thereafter it was almost a one-way journey right upto May 2006, when the market hit the 12,000 mark. Later, the market saw a sharp correction when it reached 9000 level in June 2006. But with quick pace, it then crossed the 21,000 mark by January 2008.

Market fall:

But since then we have been witnessing some pretty sharp falls. While people were expecting a 1000-2000 point correction, a 5000-6000 point fall has come as a big shock, considering the euphoria that had been created. And the fact that it doesn’t seem to be bottoming out is making the investors a lot more nervous.

Of course, volatility is not something new. But the sharp ups and downs are scaring even the old-timers in this business. 

What next?

To get the answer, first cut out all the noise and clutter around you and get back to basics. This is because 90 per cent of the people around you are clueless as you are. So, when you let the facts speak for itself, you have a better chance of eliminating ambiguities. Let's find out what they are.

Fact 1:  Equity market is NOT a lottery ticket that gives you the chance to hit the jackpot. Every share has a fundamental value and is based on the company’s performance.

Fact 2: It is possible for share prices to be widely different from their intrinsic value.

Fact 3:  In the long-run the share prices will always move towards their true value depending on the profitability and growth potential of the company.

Fact 4:  Whether the United States goes in the recession or not, the sub-prime problem creates more loss or not, India’s economic growth rate will still be comparatively high.

Fact 5:  Unless we have some serious calamity or political crises or a poor monetary or fiscal policy, we may continue to see over 7 to 7.5 percent growth rates over the next 5 to10 years.

Fact 6: If the economy continues to grow at such a healthy rate, it has to reflect in the corporate performance as well. This will lead to appreciation of the share price sooner or later.

Keeping in mind the above facts, the long-term outlook for India still remains quite positive.

Quick lessons:

• Do not panic.
• If you have invested in good companies and mutual funds, stick to it.
• It’s a good time to invest in the market.
• Be patient and disciplined and you will be suitably rewarded.

The author is a financial planner and promoter of www.wealtharchitects.in. He can be reached at sanjay.matai@moneycontrol.com.