As we bring the year to a close, fears of another Covid Wave are back. Another China variant with supposedly higher infecting potency is bringing back the ghosts of the past spooking humans and global markets. Just ahead of the Xmas and New Year celebrations and with an on-going marriage season in full swing in India, domestic and international travel has intensified with a vengeance. The timing couldn’t have been worse.
Meantime, the Nifty VIX index is already at a seven-week high. That shows the heightened fear in the market. Volatility is rising, and there is fear governments across the world would start taking preventive measures and begin by restricting people’s movements and mass gathering. The beginning of selloff in equities is not just an Indian phenomenon. The holiday season in the US means trading activity is thin in terms of volume. At the same time, holiday sales are not as strong as anticipated. In China, the selloff is due to a spike in COVID-19 infections. In other markets, low participation of institutional investors around the year-end dampens sentiment besides underlying macroeconomic concerns.
With another crisis breaking out and the virus knowing no boundaries, what should Investors do ? if we look back at the period since the first outbreak of Covid in early 2020 and the subsequent waves, every such crisis has led to an opportunity and significant market upside.
So far, we have had three waves of COVID-19 infections. There was a sharp selloff at the start of these waves. However, the Nifty jumped 84%, 24% and 10% in the year after the first, second and third waves, respectively. From the first fall, the 2 year returns from the peak and low has been at staggering levels of 142% and 218%
Financial markets are all about tomorrow’s profits. If you look at the world, there are troubling hotspots worldwide. The war in Europe, the supply chain disruption and global inflation continue to weigh over corporate earnings. With dark clouds looming everywhere, the silver lining has been the resilience of the Indian economy. In 2022, India’s economy performed like a bellwether stock. Such businesses do well even during a recession. India’s economic growth will likely be the fastest among G20 countries over the next two years. Corporate profits are likely to remain robust as domestic consumption continues to grow.
“Waning input cost pressures, still buoyant corporate sales and turn-up in investments in fixed assets are heralding the beginning of an upturn in the Capex cycle in India,” observed the Reserve Bank of India in the latest State of the Economy article published in the RBI December 2022 Bulletin. Lead indicators show that India’s economy is witnessing strong growth in credit and business expansion is likely to be robust in 2023. If this new variant of the Covid does lead to a panic sell-off, use the correction to buy good quality stocks and build portfolios at attractive valuations. As history shows, we should not let any such opportunities go waste. So stay healthy and Invest Smartly. Do not forget to visit www.alphaniti.com
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