Benjamin Graham said long ago, “The market is a pendulum, that swings between unsustainable optimism (which makes stocks too expensive) to unjustified pessimism (which makes them too cheap). The intelligent investor is one who buys from the pessimist and sells to the optimist.”
These words are as true now as they were all those years ago.
While we look back at 2018, and all the events that unraveled, we find the IL&FS crisis, followed by the credit crunch and the budgetary hangover of imprudent taxation and a general risk-off milieu.
The markets have been unforgiving while most of the negativity has now been factored in and markets, in general, seem to have bottomed out. The general sentiment of a slowdown is being countered by pro-active steps by the government.
October saw lifetime high sales on e-commerce websites of over Rs 19 thousand crores (USD 3 billion), the bulk of which is attributed to Tier 2 cities.
We also saw two bumper IPOs in 2019, both of which were in the ITeS space. The first was the B2B platform IndiaMART, and the second was the recent government of India e-commerce website – IRCTC.
Both these IPOs were not only oversubscribed but also did phenomenally well after their listing. In fact, with the recent IRCTC IPO, the government has kick-started the virtuous circle of primary issuances in Equity Markets.
What could change is the way and the medium by which business is done. The inter se change in heads is playing out, with new-age businesses disrupting older models. But, the larger point, however, remains that India today is a country brimming with the aspirations of 130 crore/1.3 billion people, with over 60 percent being under 35 years of age.
Our aspirations are more than that of our predecessors – that of roti, kapda, makan (and wifi). With this aspiration, there is also the desire to work hard.
It is this culmination of ingredients that is going to fuel India’s journey to the USD 5 trillion economy by 2024 the third-largest in the world.
There is a saying – those who do not study history tend to repeat it. History, however, inevitably repeats itself in Capital Markets – in cycles.
If 2014-17 was the crest, 2018-19 is definitely the trough. And, the like seen in previous lows of 2008 and 2001 markets inevitably rebound and rebound hard.
So from a three-year perspective, this is a very enticing market. Professionals should slowly but surely go aggressively in with high-quality names.
Another structural trend playing out is of strong domestic liquidity driving markets, and the markets increasingly becoming less dependent on the vagaries of foreign inflows.
This, in the long run, serves as an evening factor to the volatile markets and gives them a lot of gun powder for times like these.
In all, currently the pendulum is at the end of unjustified pessimism, and the reversion to the other end is already in motion. It is in this phase that a lot of value is available for Intelligent Investing. I wish everyone the best in this journey of intelligent investing, and a Happy Diwali and a prosperous New Year!
(The author is Co-Head: Institutional Equities, Edelweiss Securities Ltd) Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.