Who says buying out of fear is a bad idea? History is full of evidence that investors who have created enormous wealth after making purchases when fear gripped the markets.
Billionaire investor Warren Buffett once said that an investor should be fearful when others are greedy, and one should be greedy when others are fearful.
The latest fear to grip markets was demonetisation which came as a surprise to not just equity markets but to the common man as well after Prime Minister Narendra Modi made the surprise announcement on November 8, 2016.
The market tumbled in November 2016 soon after the government announced the surgical strike on black money, but slowdown in consumption fuelled fears of a fall in economic growth and pulled markets lower.
The S&P BSE Sensex which closed 27,591.14 on November 8, tumbled 339 points the very next day to close at 27,252.53. It slipped to a low of 25,765 on November 21 which translates into a fall of 7 percent or little over 1800 points from the closing level recorded on November 8.
The initial dip in the market was quickly bought as market witnessed a rebound the very next month (December 2016). The S&P BSE Sensex retested 25700 level again in December but then witnessed a sharp bounce back which took the index above Mount 33K.
Investors who bought stocks when the whole world was selling Indian markets, including foreign investors (FPIs), are now a happy lot. The S&P BSE Sensex has risen over 22 percent and investors’ wealth has increased by Rs 30 lakh crore since November 8, 2016.
As many as 36 stocks from the S&P BSE 500 index more than doubled investors’ wealth up to 1000 percent in the last one year.
Stocks which outperformed benchmark indices in the last one year include names like Indiabulls Ventures which rose over 100 percent, followed by Rain Industries which gained 519 percent, and Avanti Feeds rallied 453 percent in the same period.
Others stocks which rose more than 100 percent include names like Adani Transmission, Dilip Buildcon, Bombay Dyeing, Future Retail, Indiabulls Real Estate, Sterlite Technologies, Edelweiss Financial Services, GNFC, Welspun Corp, and Sunteck Realty etc. among others.
Among the Nifty50 names Reliance Industries emerged as a clear winner, rallying nearly 90 percent in the same period, followed by Bajaj Finance which gained 86 percent, and Bharti Airtel rallied 77 percent in the same period.
Other stocks which rose 30-60 percent include names like Yes Bank, IndusInd Bank, HDFC Bank, HUL, HPCL, Adani Ports, Vedanta, Indiabulls Housing Finance, Hindalco, Tata Steel etc. among others.
On the sectoral front, the S&P BSE Realty Index rose 60 percent, followed by the S&P BSE Consumer Durable index which gained 50 percent, and the S&P BSE Energy and Telecom index rallied 48 percent respectively in the last one year.
Impact on fund flows:
What was once considered to be a doomsday by most Indian and global economists as well as analysts turned out to be a golden opportunity for retail investors. Demonetisation pushed financial savings from households into equity markets via mutual fund route.
The assets under management rose over Rs 20 lakh crore in September and equity MFs' assets tripled in April-October.
As per data from the Association of Mutual funds of India (AMFI), equity-oriented mutual funds (including arbitrage funds), balanced funds and equity linked savings scheme (ELSS) funds saw inflows of Rs 21,900 crore in October.
In September, these funds saw inflows of Rs 27,077 crore. For the first seven months of the current financial year, cumulative inflows into these funds have tripled to Rs 1.51 lakh crore as compared to Rs 46,840 crore in the same period of the previous year.
Watch | One Year Of Demonetisation - A Look Back At The Timeline
What has been changed post demonetisation is very interesting from the Indian Equity Market’s perspective. Even after a significant fall in foreign institutional inflows (FII) the market didn’t slip.
Foreign portfolio investors pulled out over Rs 30,000 crore in the month of November and December from India equity markets while domestic investors acted as a shield and prevented free fall in markets.
“The downpour of Domestic Institutional inflows was enough to keep up the turgidity of the index, which blatantly asserts that Indian markets have abandoned FII crutches. Statistically, there is a clear visibility of change in DIIs trend, where there were around net Rs 23,000 crore of inflows from Nov-15 to Oct-16, an inundation of 1 lakh crore was observed by them post DeMo till the month gone by,” Sunil Nyati, MD, Swastika Investmart told Moneycontrol.
“Contemporary to this FIIs were the net seller by around Rs 55,000 crore. However, the market was indifferent to this & escalated to new heights with more than 25 percent of return during this period,” he said.
Nyati is of the view that if we check the headline index then we can say that there is more than 25 percent rally in the market but last year was attributed to Midcap and Smallcap stocks where the market has a long list of many stocks which have become multibaggers in the last one year.
Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
Kshitij Anand is the Editor Markets at Moneycontrol.