What should retail investors do in equity markets that give disappointing returns?

Markets are always forward looking while we, as investors, keep living in the moment or worse, sometimes in history. Here’s what investors should do when markets give disappointing returns!

share markets
Growth or valuation can’t be seen in isolation.

By Manish Jain

Equity markets returns have been disappointing for some time leading to a sense of despondency for the retail investors. Nifty has been flattish since September ’21, that’s a good 18 months now, so disillusionment is quite understandable. This has also coincided with the RBI increasing rates and hence after a long time fixed income yielding instruments are suddenly looking so attractive, both in absolute terms and on a relative basis.  

So, the key question at this point in time is: What should the retail investors do? Are there lessons to be learnt here? Here are some of the key learnings from these markets:

A)      Have the correct perspective: We, as retail investors, always look at point to point returns and then form our view. The time frame in question is rarely objective. Now, when you look at the nifty over 18 months, you see flattish returns. However, when you look at it over a three year period, it has more than doubled. So, the lesson here is equity is for long term investors and needs to be looked at in that perspective. Short term phases are normal and to be expected.

B)      Growth or valuation can’t be seen in isolation: This is again one fundamental mistake that almost all investors make at some point of time or the other. We tend to look at these two in isolation when they are meant to cohabit. Valuations, no matter how cheap, mean nothing if growth is absent. Growth, no matter how strong, is meaningless if valuations are exorbitant. So, the life lesson is everything should be analysed with totality and if valuations are prohibitive, you will have to take a hard call, no matter how strong the growth.

C)      Quality always pays: In these tough times when one crisis follows the other, it’s imperative that we continue to focus on quality. Short term returns are always alluring but the peril is that when the wealth gets completely eroded, we don’t know. Hence, it’s important to keep faith in quality and always invest in the Good & Clean companies.

D)      Have a forward looking view: Markets are always forward looking while we, as investors, keep living in the moment or worse, sometimes in history. This is one of the key reasons why we are not in tandem with the markets so many times. The lesson is to be forward looking. Build positions in sectors that will do well, from a growth perspective, in the medium term and stay on top of the earnings, news and fundamentals. Over the medium to long term, you will always do well.

As the proverbial saying goes – every adversity is an opportunity to learn, we do believe that these markets are also teaching us a lot. So, stay calm and keep investing in quality.

(Manish Jain, Fund Manager, Coffee Can PMS, Ambit Asset Management. Views expressed are author’s own. Please consult your financial advisor before investing.)

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First published on: 01-04-2023 at 12:35 IST