Markets tend to get ahead of themselves ever so often, in the noise surrounding a plethora of analysts who always seem to fit retrospectively their opinions to what has happened in the markets.
By Nikhil Kamath
The new year brings with it a whole host of expectations and targets. We as a community have been preconditioned to pay heed to the positives while not paying too much attention to the intrinsic fundamental issues that persist in the market. This could be due to the positive impetus we receive from most of the new outlets we have on offer, which are financially motivated by the new money and fund inflows coming into the markets.
Markets tend to get ahead of themselves ever so often, in the noise surrounding a plethora of analysts who always seem to fit retrospectively their opinions to what has happened in the markets. A take away from all of this could be to look at the large picture once every year and ensure you are not curve fitting your opinions to the market noise of today.
I would like to stress upon the importance of buying into the markets at a fair valuation. Historically, the markets trade at an average PE valuation between 20 and 22. Post this correction which has brought back Nifty to the 10800 levels, we are still trading at multiples of around 25 which could be considered expensive comparing against the historical average.
Nifty has yielded a CAGR of around 12% over the last two decades, and entering at fair valuations could yield gains in line with the past. With the fundamental changes being brought in by the incumbent government we see a lot of changes on the ground which could fructify over the coming years.
We remain hopeful about the long-term interest in India and would advise a simplistic approach to enter the markets. A strategy we would recommend for the new year would be to wait until valuations come closer to the long-term average valuations and to enter large-cap stocks in the sectors you believe will be around 20 years from today. Remaining as passive as possible and not rebalancing, not paying advisory fees, etc. will aid to the long-term returns.
After having gone through a whole host of strategies – technical, fundamental, algo-based, etc., and trading and managing money in different capacities for 15 years, the realization I have drawn is that keeping it as simple as possible may be the best way to enter the markets and manage your savings for the long term.
The key remains to have realistic expectations while not falling prey to the draw of larger returns over the short term.
(Nikhil Kamath is the Co-founder at Zerodha. Views are the author’s own)