The Signal: The Story Of Indian Markets – New Events & Old Outcomes

Over the last 20 years, Indian markets have either been navigating through a crisis or tightening its seat belt for the next one. While much can be written about it, the graphs below convey best, the painful-cum-gainful ride of the Indian markets:

The markets have been tried and tested at every turn in different manners, encountering a host of crisis. 

Across bubbles (tech), loans (banks) and bones (health), markets have seen it all but have always yielded only 1 result – to continue to be pro-investor and pro-money.

Today is no different as markets juggle between what to make of the new spurt in Covid crisis overseas and the elections – again overseas. As investors continue to shift sentiment like that of a chameleon changing colors, we put forward a new question. A question to you – the reader:

Is That The Right Question To Ask?

In two simple letters – No. 

If the graphs above didn’t answer your question already, then let us get microscopic with our approach and review a few key events of the yesteryear to test and realize market’s true resilience. Or a more nuanced way to out it – Market’s Indifference to these “hiccups”.

• Year 2000 – The New Century Big Bang

At the horizon of the new millennium came the newfound love for everything technology. Markets were abuzz with the new lingo and wireless gear as IT sector boom helped itself to represent ~12.5% of the benchmark Indian index – The 3rd highest at the time!

But with cupid’s misfortune and market’s re-appearance of senses, the uncovering of tech unleashed more woes and foes than participants were prepared for.

Mass hysteria gave birth to mass movements…on the downside, as panic selling became an action of comfort. 

This was the market’s 1st real test, and in the time it did give in. But it’s the after-math that made for real lucrative numbers.

The graph below highlights the market journey from 2000 till the next big crisis hit:

• Year 2008 – Banks Become Their Own Debtors

The case of ‘Bad Banks’ is an event which needs no description, for it continues to teach participants as much today as it did back then.

What does it teach us? No matter how bad the event, if poor investing got you into it, then sound investing will get you out of it.

The graph below highlights market journey from 2008 till markets found its equivalent in health and wealth crisis of Covid:

• Year 2020 – Stop, Drop And Roll Stay

Covid-19 is arguably the biggest health crisis the markets and world have to tide through. Introducing and re-introducing lockdowns, the viral virus decimated economies world-wide. 

Markets this year were rife with myths and murmurs, which skyrocketed volatility and investor tensions. If only investors ‘socially distanced’ themselves from these events by ‘masking’ their ears, they would not have been victims but victorious. 

The markets, like every time before, reacted to shock and then shocked those who reacted. 

The graph below highlights how the markets have surfed through the “Covid become Go-vid” wave:

Investor Takeaway

Markets, like history, does not repeat itself, but finds a way to repair itself. It is in the process of re-balancing the scales, that merits of the sound and standing investing principles shine.

Remember: Playing with emotions is Paying with emotions. Adopt a Buddhist approach to investing wherein you don’t give in to temptations. To delay Gratification is to fast-track it.

Today, we find ourselves in a position where the US elections have added an extra layer of tension to market mood. In this mix, we advise to stay put and maintain your risk-based asset allocation. 

Re-look the 1st graph in this note. See the events? Try finding a mention of the presidential elections therein. Cannot find it? That shows how markets have burnt through events of more significance. Events which are off the cuff and not regular and timely which occur consistently at 4-year intervals. Events where the outcomes were not necessarily binary.

Need one last bit of convincing? Well, lets do a test.

The graph below shows the annual returns of the BSE Sensex index over the last 20 years. In the time period there have been 5 US elections, with 3 being won by Republicans and 2 by Democrats. 

Try charting the quantitative effect of the elections in this print. Cannot? Then why worry, because you never needed to in the 1st place!

So, don’t let the elections “decide” your portfolio positioning, but instead you “vote” to stay invested!

If you have any anecdote to share with us, then write away! 

Happy Weekend