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Timing The Market Is A Fool’s Game – Look At The Big Picture

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Wondering whether it is the right time to invest in the stock market?

In our honest opinion, yes, it is! In fact, it is the best time to invest in the Indian stock market if you want to become a successful investor. Today we will tell you the difference between a wise and an ordinary investor and how you can become a successful investor.

September was on all account a positive month for the stock market with Sensex crossing a psychological level of 60,000. Then October came and the Blue-chip Index Nifty crossed the 18,000 mark. However, last week the stock market corrected with Nifty Midcap 100 and Nifty Small Cap down 3.53% and 4.60% respectively. Moreover, several fundamentally sound stocks like IRCRC, IRX, Deepak Nitrate, etc. tumbled 10%-35%.

 

Why did IRCTC fall?

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Here comes the fascinating bit.

In the last one year, investors’ darling IRCTC gave exuberant returns, growing from 1,000 level to 6,000. Many wanted to buy the stock when it was at 5,000 – 6,000 levels.

However, it fell dramatically last week since the National Stock Exchange (NSE) banned the stock on the Futures & Options (F&O). The reason for the ban was that the stock crossed the 95% threshold of the market wide position limit (MWPL).

What is that, you ask?

The MWPL is set by the stock exchanges, which is the maximum number of contracts that can be open at any time (Open Interest), therefore, the F&O contracts of a stock enters a ban period if the open interest crosses 95% of the MWPL.

Does this fall in price imply weakening of the company’s fundamentals?

No. The company’s fundamentals are intact. Many ordinary investors offloaded IRCTC from their portfolio just because others were selling.

 

Why did IEX fall?

Similar is the case with Indian Energy Exchange (IEX). Before plunging ~24% last week, IEX had gained over 35% in October alone. The stock rose on the backs of the Energy Crisis buzz, strong second quarter earnings, and a bonus issue announcement.

Today the National Stock Exchange added IEX to the F&O banned list with six other stocks.

Does this fall in price imply weakening of the company’s fundamentals?

No. The company’s fundamentals are intact. Many ordinary investors offloaded IEX from their portfolio just because others were selling.

No. The company’s fundamentals are intact. Many ordinary investors offloaded IEX from their portfolio just because others were selling.

Let us now come back to the difference between a successful and an ordinary investor and why it is the best time to invest in the stock market.

A successful investors would look at this correction in IRCTC, IEX, Deepak Nitrate, etc. as an opportunity to buy as these stocks are available at cheap prices. An ordinary investor, on the other hand, would pursue it as bad time to invest. He/she would wait till stocks return to pre-correction levels.

A wise investor looks at a dip in price as an opportunity and an ordinary investor looks at a rise in price as an opportunity.

So you need to decide, which one you want to be.

Now, why it is the best time to invest. The country has undergone tremendous positive changes over the last few months. These developments and key policy reforms mean India is poised for growth.

Here are a few major developments-

Big Trillion Plan- Last month, the Government unveiled a four-year National Monetization Pipeline (NMP Vol 1 & 2) worth an estimated Rs. 6 lakh-crore. This plan aims to unlock value in the Infrastructure Line Ministries’ assets. The Creation through Monetization philosophy is directed at tapping private sector investment for new infrastructure.

Retails investors contribute to the rally– 15.2 Million Retail investors have added to the investor base since April 1. This implies retail investors are no more riding pillion but are major contributors to the recent rally.

The sixth largest stock market- India became the world’s sixth largest stock market, overtaking France for the first time in market capitalization.

FIIs Continue the Buying Spree- The fear of taper tantrum has reduced. Irrespective of negative comments from the bankers around the world, the Foreign Institutional Investors (FII) continue their buying spree. The NSDL data says FIIs buying stood at Rs. 2.28 trillion in September.

PLI Scheme- The government approved Production-linked incentive (PLI) scheme for the textile sector worth Rs. 10,683crore. Automobile and auto components industry to receive an outlay of Rs. 25,983crore under the PLI scheme.

NBFCs loosen their Purses- After a brief pause during the COVID-19 pandemic, the NBFCs and Banks have begun filling creditors’ pockets as the demand for loans picks up. Edelweiss and IIFL are now lending Rs.4,000 crores a month. The country’s largest mortgage lender HDFC Ltd. is witnessing a remarkable rise in home loan demand similar to pre-COVID levels. 

Bad Bank to tame the Worsts: After its announcement in the FY22 Budget, the Union Cabinet approved 30,600core government guarantee for the National Asset Reconstruction Company (NARCL), facilitating the formation of Bad Bank.

India MSCI Index Premium Soars– The valuation premium of the MSCI India Index reached 55% and 12% by mid-June compared to the MSCI Emerging Markets and MSCI World indices. Moreover, this is much higher than the five year average premium of 45% and 8%.

With all these and other developments happening in the periphery, one should look at the bigger picture instead of fearing short-term corrections in the stock market and waiting for the right time to invest.

Today, the Sensex is above 60,000. Sure, it’s a big number. But can you imagine how high the stock market will be, if all things fall in place as planned.

Nick Murray’s quote says it for us

“Timing the market is a fool’s game, whereas time in the markets is your greatest natural advantage.”

Need sound advice on where to invest, how much to invest, for how long to invest in the stock market? Subscribe to 5 in 5 Wealth Creation Strategy and get a portfolio of 20-25 fundamentally strong stocks tailored for your goals and risk taking ability.

Read more: Why Did Tata Chemicals Fall?

 

*Disclaimer: Information mentioned in this email is for educational purposes only. Please do not consider it a recommendation to buy/sell/hold from Research & Ranking.

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