You are currently viewing Investing through stock market cycles

Investing through stock market cycles

  • Post author:
  • Post category:Posts

You can deal with situations that are bullish and bearish while investing. But finding your way through a period of lull is fraught with challenges. Your financial advisor may tell you things like portfolio diversification, rebalancing and thinking about the long term. All of that requires you to know a lot of stuff.

Financial markets move in cycles. The trigger for these cycles depends on macroeconomic trends. If inflation rises like it is worldwide, you will likely see interest rates rise in most major economies. That affects the way businesses are run. When inflation is high, demand for goods remains stagnant or low. That influences the way companies to make money. Stock markets follow the trend in corporate profits. Corporate profits will decrease if the overall economic trend is towards slow growth and hurt share prices. Over the past year, benchmark indices like the NSE Nifty 50 and S&P BSE Sensex have barely moved. They have remained flat despite a surge in inflation and a sharp increase in interest rates.

That situation calls for you to make the right choices. You can dive a bit deeper instead of concentrating on the broader market. The idea is to look for sectors that are probably looking up. For example, the share prices of aviation companies have suffered during the pandemic and in the aftermath. Companies have suffered from lockdowns, poor passenger traffic and high fuel prices. However, there are signs of recovery. CRISIL, a credit rating agency, predicts profitability for India’s top airlines in 2023-24. The passenger traffic is back to levels before the pandemic. At the same time, airlines are expected to hold on to higher ticket prices due to a surge in demand. 

The other example could be engineering and construction companies. India Ratings, another credit rating agency, estimates that companies like KEC International and Ashoka Buildcon, among others. India Ratings expects these companies to grow revenue at 16-17% in 2022-23. That growth is driven by sustained capital expenditure from the government and relative stability in commodity prices.

Overall, Indian equities paint a relatively stable picture of a flat trend. However, there are likely to be negative surprises. The recent development in Adani group companies shows the vulnerability that companies with high valuations could face in the market. Many Adani group shares traded at a price-earnings multiple of 100s. That is never acceptable to the market. Share prices of many consumer companies trade at sky-high valuations. There have been sharp surges in the prices of financial services companies too.

The flat trend in Indian equities over the past year is despite the sharp selloff by foreign portfolio investors. Domestic mutual funds continue to support the market as they receive monthly inflows from local investors. To differentiate your portfolio, you must learn more about potentially attractive sectors or companies. The other option is to use technology. Alphaniti can help you in your endeavour to stand out.


India Ratings and Research: Most Respected Credit Rating and Research Agency India

Aviation takes flight to profit as demand soars | Mint

Thank you for reading this post, don't forget to subscribe!