The year 2020 is turning out to be fascinating at every step of the way. The Indian Stock Markets’ fueled by a Corporate tax cut gave stellar returns in 2019, following which 2020 was kicked off with a bang, as Nifty made an all-time high of 12,430 in January 2020.
However, the jubilation and cheer of markets faded away quickly as the dreadful pandemic of Covid-19 struck down the world. The global economic machinery almost came to a grinding halt.
And markets do not like Uncertainties! In a span of just a couple of weeks, Nifty crashed by 40% to the levels of 7,600 by March 23, 2020.
We thought we had seen it all this year - the good, the bad and the worse. Yet, the unfathomable has happened! Surpassing its earlier highs of 2020, Nifty hit an all-time high of 12,700, meaning it was up by 67% by Deepawali in Nov 2020.
To understand this situation, let’s look at an analogy between two of India’s favourite activities – Cricket and Stocks! This year in stock markets has been sensational; the drama, the thrill and the excitement were similar to a T-20 IPL league.
NIFTY’s journey in 2020 felt like the final match of the IPL. A team chasing 250 runs; getting off to a flyer with a 100 in the power play, then losing quick wickets, scrambling to float in middle overs and ultimately unleashing in the slog overs and pulling off a miracle at the last ball of the match.
However, if you ask any investor, the pendulum swing move by NIFTY from the peak of 12400 to low of 7600 then to 12700 was like getting a serious cardiac arrest and then recovering miraculously.
If an astrologist would have told us at the beginning of the year that the entire country will be under stringent lockdown for months with minimal economic activity, the Govt will be short of finances to support people; we should not expect a vaccine before 2021, the GDP will contract by 24%, the US elections will not have a clear winner for days, and the most market-friendly President will be ousted from power;
Who would have dared to stay invested in the stock market?
Well, no one! Unless you have invented your own time machine.
Surprisingly, markets are soaring to new heights, proving the forecasters, predictors, and naysayers wrong. This phenomenal journey of markets making a 360-degree turn is a moment of enlightenment for investors – experienced as well as the novice.
This entire journey brought along some very useful lessons which should be treasured by every existing and prospective investor. Some of the treasured lessons from this season are -
Markets and underlying economic fundamentals can remain disconnected from each other.
Economic activity never becomes nil. Instead, the size of the pie has shrunk, resulting in further uneven distribution of profits. Industry leaders and bigger players are grabbing a lion share of the profit pool, owing to the economics of scale and size. As a matter of fact, the investors tend to flock more towards winners, driving up their weightage in Index - leading to higher levels.
Our superpower is our overwhelming spirit and resilience to overcome any form of crisis, be it social, medical, or financial.
Organizations have been agile in adapting to unimagined ways of maintaining business continuity by facilitating working from home, leveraging digital platforms for smooth functioning, optimizing & rationalizing various overhead costs.
Performances of many corporates in Q2 were compelling, and their financial results were dazzling, to say the least. Many of these corporates will be able to retain existing operating leverage which will boost long-term profitability and their valuations, likewise.
Clouding your judgement with short term predictions and forecasts is unproductive and fruitless.
No one gets them right always. No matter how bleak the near term may seem, the longer term is upward trending. This is based on empirical evidence of progress and development of the human race over the centuries. Therefore, do not get bogged down by the D-day syndrome.
Sometimes doing nothing in stock markets pays off. The goal is to win the war, not every battle.
Sounds clichéd, but it is critical to stay in the battlefield of the stock market when the tide is blowing against you. If you leave the ground, then you are out of the race without even fighting. The dark, quiet nights are always followed by a new dawn of opportunities.
Some win harder than others. Keep your eyes on the prize.
A handful of industries and companies such as IT, Pharma, Medical & Healthcare, consumer staples etc. are the key beneficiaries of the Covid-19 crisis, and they shall be victors of tomorrow. Apart from this:
- Adoption of technology, migration to cloud computing, use of artificial intelligence and Machine learning will snowball.
- Healthcare and medical infrastructure is pegged to take centre stage for governments across the world, budget allocation and investments in these areas will increase by manifold.
- Residential real estate will undergo an overhaul, as migration to Tier 2/3 cities from Metros and Tier 1 cities will accelerate due to changing workplace, healthcare, and lifestyle preferences. Better Affordability and a healthier environment will be a major cause of attraction for this big drift.
As an investor, we should try and identify companies which are abreast and agile with the changing trends as they traverse the journey from small, to big to being a behemoth. Some of them would be 10-20-50 baggers over the next decade.
Focus on long term emerging business trends and try to catch them young. Equities as an investment avenue, time and again, have proven to be the best asset class to generate real returns, beating inflation. Despite the ubiquitous truth, very few investors are able to reap the benefits.
Years like 2020 may recur in the future with massive drawdowns in equities and may not recover so swiftly, and they will be a test of investors’ nerves. Time and patience are the keys to long-term wealth creation.
As it is rightly said, “Time in the markets is more important than timing the markets.” The one who does it creates massive wealth!