Adhil Shetty
The Financial Year 2016-17 saw several ups and downs taking the investors on a rollercoaster ride. Political and economic uncertainties in India and around the world have rocked the Sensex causing ripples across the market. Nevertheless, it has provided some great learning experiences to equity investors. Let’s look at some of the events from which we can learn.
Brexit
Following the Brexit referendum, the fear of UK being isolated, disrupting trade agreements with other countries that used to deal with EU as a block led to a drop of 2 percent in the stock market. There were several rumours abound and talks of the global economy slipping into another recession. The Rupee plunged by 96 paise on the intraday trading. However, the market pulled back in a few weeks.
Learning: During such turbulence, its best to wait and let the dust settle down. Aggressive investors can use such moments to buy stocks.
Rexit
A week before the Brexit referendum, the stock market had seen another drop by 0.76 percent when Raghuram Rajan announced his decision to leave the Reserve Bank of India. Investors were sceptical that Rajan’s exit would stall banking reforms. However, the market calmed in a few days with the new governor Urjit Patel taking office.
Learning: It is important to understand an event based on the impact it has on the earnings of various companies. With Patel coming in, the short-term volatility abated.
GST bill
Amid a series of bad news, the passing of the GST bill saw the stock market react positively. The passing of the GST bill has large macro-economic implications and it is expected to impact the economy positively. A lot depends on the way it is implemented in order to simplify the collection of indirect taxes.
Learning: Investors should maintain a positive outlook towards an event like GST which is a net-positive move despite any short-term difficulties.
Surgical strike
The stock market reacted sharply to the news of a surgical strike by the Indian military forces on Pakistani soil. It was a shock move and fears were ripe that the fighting could escalate into war. Tensions simmered for a few weeks between India and Pakistan, after which it was business as usual.
Learning: A wise investor always waits for such opportunities to invest when market reacts negatively to an event that is unlikely to impact businesses in the long term. Investors who locked their positions during these market falls reaped profits soon after.
DemonetiSation
The market dipped immediately after the announcement of doing away with Rs 500 and Rs 1000 currency notes, with realty stocks and the construction industry coming under pressure. Many investors rushed to convert cash into gold but the gold prices came down soon with government taking corrective measures to eradicate illegal transactions.
Eventually, the banking stock started performing well due to huge deposits received on the account of demonetisation. Following the budget, the realty market has also been looking up with the government taking steps to ease the pressure of demonetization with schemes to support affordable housing.
Learning: This was an especially turbulent time in the economy, and calm heads are required to make the right investment decisions. One must avoid herd mentality and wait for the situation to come under control.
US elections
Donald Trump’s victory in the 2016 US election took the world by surprise, sending ripples across markets. The stock market in India dipped dramatically on the day, especially with Trump announcing his policies restricting visa access, a dampener for the Indian IT companies. However, the impact slowed down with the Indian drug companies sensing opportunities in Trump’s victory and the arrival of demonetisation.
Learning: Look to limit losses from businesses that would be impacted the most through Trump’s policy decisions, while looking to increase gains from those businesses that would gain from the same policies.
The most important thing that investors can learn from 2016 is to stay invested and to believe in the fundamentals of the Indian economy.
The writer is CEO, BankBazaar.com
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