What Could Move Markets In 2022?

Que Sera Sera….

Let us make some intelligent guesses as to what could move markets in times to come, from a one-year perspective.

COVID –Omicron.

Vaccinations against Covid are effective & r getting better, but it is still sometimes when it completely goes away. The world will have to learn to live with it for a while.

Omicron is transmitting at a very fast pace but hasn’t proven fatal so far. What remains to be seen is what would happen if a large number of people get infected at one go & in one territory. Would it be fatal then?

Interest Rates At US

US Fed has indicated very clearly that in 2022 there will be 3 interest rate hikes to battle high inflation. World markets have started to come to terms with it & are factoring it accordingly.

India Growth Story – Economic Indicators.

IMF has stated that we will grow at a rate of 9.5% in 2021. This is the highest growth rate for any country this year. As per IMF, we will grow at the rate of 8.5% in 2022.

In the period of April-June 2020, we logged in a negative growth rate of -24.4%. Same quarter in 2021, we are + 20.1%, more so this is the first time in our independent history that we have grown so robustly.

Wholesale Price Inflation (WPI) is at 12 year high. It was at 14.23% in Nov ’21. This is primarily due to the rise in food prices especially of vegetables, minerals & petroleum products.

Per Capita Income is down by 8.24%.In 2020-21 this has come down by Rs 8951 & was at Rs 99,694. In 2019-20 we were at a record high of Rs 1,08,645.

The unemployment rate has improved from where we were in April 2021. In April the rate was 7.97%, in May at 11.84% and in Nov this has reduced substantially to 7%.

42 startups got the proverbial Unicorn status in 2021. In 2011 Inmobi was the first Unicorn ($ 1 billion valuations)startup. Today after 10 years we have 79 Unicorns & counting.

Stock Markets

Production disruptions, intermittent market closures, raw material price volatility & credit availability were the key reasons affecting market players in the Covid environment.

Mid & Small Cap stocks have rallied a lot in 2021 which has pushed their valuations up tremendously. Earnings growth & valuations, two counteracting forces will influence the performance of mid & small caps in 2022. Currently, after a solid run in the past 18 months, their valuations are high, both against the trend as well as large-caps. This high valuation will weigh down its relative performance.

Key large players in many sectors have grown faster than respective industry averages. And with stretched valuations in mid & small caps, large caps have a better chance of delivering in 2022.

With generous liquidity coming to an end, investors need to be careful with stocks whose valuations are very high relative to their past trends or that of peers.

However let us not forget that the Indian economy is at the start of a cyclical upswing, the two-year period up to Covid saw a sharp downswing.

Methinks that if the strength of the earnings recovery over the next 3 years is robust then we need not worry much about falling liquidity. A balanced view that considers medium-term growth prospects along with falling liquidity, would be more appropriate.

The year 2022 is going to be absolutely event-driven, both nationally & globally. Asset allocation will hold the key to investing. Spread yourselves across Large, mid & small caps & Dynamic Asset Allocation themes. Remain true to your risk profile & appetite. Identify your goals, plan meticulously for your desired returns & steadfastly, stay the course.

And yes, Indian stock markets are the place to be & stellar returns will come if one invests wisely & stays the course, keeping your life goals in mind !!!

Wishing all my investors a very happy, healthy & eventful New Year 2022!

July 22, 2021

TIME IN THE MARKET IS MORE IMPORTANT THAN TIMING THE MARKET

What is Market Timing?

Market timing is an investing strategy in which the investor tries to identify the best times to be in the market and when to get out. Proponents maintain that successfully forecasting the ups and downs of the market can result in higher returns than other strategies. Critics, however, note that changes in a market trend can appear suddenly and almost randomly, making the risk of misjudgment significant. Market timing is an investment strategy that involves going in and out of the market or switching asset classes based on predictions that attempt to measure how to market will move. The problem with this method is that it’s nearly impossible to accurately time the market even by successful Fund Managers across the world.

Market timing has its Disadvantages

One of the biggest costs of market timing is being out when the market unexpectedly surges upward, potentially missing some of the best-performing moments. For example, an investor, believing the market would go down, sells off equities and places the money in more conservative investments. While the money is out of stocks, the market instead enjoys a high-performing period. The investor has, therefore, incorrectly timed the market and missed those top months. Due to some quirk in human nature, we tend to be overconfident in our ability to predict the future. So we end up timing the market. Or at least trying to.

Mutual funds investors frequently try to time their systematic investments in response to the market’s ups and downs. When the market is falling, they stop their SIPs. When it is rising, they increase their SIP amounts. This invariably backfires.

The opposite of market timing is buying and holding as the market goes through its cycles.

Market timers often try to predict big wins in the investment markets, only to be disappointed by the reality of unexpected turns in performance. It’s true that market timing sometimes can appear to be beneficial. But for those who do not wish to subject their money to such a potentially risky strategy, time — not timing — could be the best alternative.

Time is Investor’s Best Friend

Clearly, time can be a better ally than timing. The best approach to your portfolio is to arm yourself with all the necessary information, and then take your questions to a financial advisor to help you with the final decision making. Above all, remember that both your long- and short-term investment decisions should be based on your financial needs and your ability to accept the risks that go along with each investment. Your financial advisor can help you determine which investments may be right for you.

Patience while Investing Pays BIG TIME!

Investors have been in tough situations in the past, the event that is still fresh in our memory being the 2008-09 Global Financial Crisis (GFC), where markets saw a flip flop ride initially which was finally followed by a swift recovery over medium to long term. Investors who tried to time the market during the crisis would have most likely repented while a patient investor who ignored the noise and remained invested would certainly be counting his fortunes today.

The below table shows the Systematic Investment Plan (SIP) of Rs 10,000 per month since 1st April 1998 in the NIFTY 50 Index and their market values during the 2008-09 GFC and after 5 and 10 years.

Date	Remarks	Total Months	Total Investment	Market Value(In Lakhs)
Sep 2007	1 Year before Global Financial Crisis	114	11.4	39.84
Sep 2008	Global Financial Crisis	126	12.6	32.06
Sep 2013	5 Years after Global Financial Crisis	186	18.6	53.98
Sep 2018	10 Years after Global Financial Crisis	246	24.6	110.74

As can be seen from the above table, the market value of SIP decreased from Rs 39.84 lakh to 32.06 lakh during the Global Financial Crisis. However, someone who would have continued their SIPs would have seen their wealth grow to Rs 53.98 lakh as of September 2013 (after 5 years of the GFC crisis) and Rs 110.74 lakh as of September 2018 (after 10 years of the GFC Crisis).

Since Last Year we were in a similar situation where the market value of SIP investment which was started 10 years (SIP of Rs 10,000 per month since 1st April 2010 in NIFTY 50 Index) back has seen a fall due to the outbreak of the pandemic and then we are witnessing Market upsurge and Long Term Visibility Looks Very Good in terms of Wealth Creation.

Date	Remarks	Total Months	Total Investment	Market Value(In Lakhs)
March 2019	1 Year Prior to COVID 19 Crisis	108	10.8	17.9
March 2020	COVID 19	120	12	14.07
March 2025	5 Year After COVID 19 Crisis	180	18	??
March 2030	10 Year After COVID 19 Crisis	240	24	??

Investors’ behavior becomes important during such times Like GFC, COVID 19, etc as emotions are at a greater play in situations when there is heightened volatility. Investors ‘Greed’ to chase returns and ‘Fear’ to stay away from falling markets usually keeps them at bay during tough times. The result is that the investor ends up sitting at the fence for a long time patiently investing to capture the right opportunity and multifold compounding returns.

TIME is a superpower. It works well even for the most Unlucky investor!

Let’s consider One investor invested only at the wrong time(invested just before any Major Market Fall). He didn’t take his money out after that and withstood all the future declines without panicking out.

This simple but difficult act of patience gave the portfolio a long enough time horizon to let compounding work its magic. While there is a natural tendency to shrug this off given the simplicity of the solution, here is some hard-hitting evidence.

Check out the returns of lumpsum investments in Nifty 50 TRI till date when invested right before the major falls of the past two decades.

Major Fall >20% Since 2000	Absolute Decline	Nifty 50 TRI Lumpsum CAGR(When invested at Peak Just Before the Fall)	Debt	Inflation
2000 Dotcom Bubble	-50.00%	12.00%	8.00%	6.00%
2004 Indian Election Uncertainty-30%	-30.00%	14.00%	7.00%	6.00%
2006 Global Rate Hike Sell-Off	-30.00%	11.00%	8.00%	7.00%
2008 Global Financial Crisis	-59.00%	8.00%	8.00%	7.00%
2010 European Debt Crisis	-27.00%	10.00%	8.00%	7.00%
2015 Global Market Sell-Off(Yuan Devaluation)	-22.00%	11.00%	8.00%	4.00%
2020 Covid Crash	-38.00%	19.00%	8.00%	4.00%

Summing it up

1-As seen above with the help of time even the most unlucky investor ended up with a reasonable outcome outperforming debt funds and inflation.

2-A simple SIP removes the need to time the markets and if given enough time provides a return that is almost as good as the hypothetical lucky market timer (who is difficult to exist in reality)!

3-If you have a long time horizon, a simple SIP in a few good equity funds for the next 10-15 years is all it takes to ensure a good investment outcome.

Do not let the inherent simplicity of the solution, undermine its ability to deliver the magic of compounding.

June 14, 2021October 18, 2021

HARNESS THE POWER OF COMPOUNDING AND RUPEE COST AVERAGING USING SIP

SIP is an option designed by mutual funds, allowing you to invest a small sum in the stock market on a regular basis. The main advantage of a SIP is that it averages out your cost in the long run as an investor gets more units when the markets are down.

The periodicity of a SIP can be determined by one’s cash flow and can be increased with a rise in income or addition of financial goals. In brief, a SIP helps you grow even a small investment into a large corpus, thanks to the power of compounding. The trick is to start early.

SIP is better as it averages out the purchase cost rather than lock up the money at a particular NAV as in lump sum investments.

Advantages of SIP:

Power of Compounding
“Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.” – Albert Einstein.
To avail the benefit of power of compounding one has to start early and invest regularly. At an early stage, a less investment is needed and your money gets more time to grow whereas more investment is needed at a later stage to accumulate the same planned corpus.

The concept of compounding is simple. Power of compounding is nothing but interest earned on interest or profits earned on profits. The power of compounding over a long horizon, if invested in the right asset, is enormous. From a wealth creation stand point, time is the most important factor in investing, much more important than factors like market levels, valuations (PE ratios), current economic and political scenarios etc. Example
If you invested Rs. 1,000/- in an instrument giving 10% return in a year. At the end of year 1, value will go to Rs. 1,100 and in year 2 you will earn return on Rs. 1,100 and not on original investment of Rs. 1,000/-.

Rupee Cost Averaging:
It means averaging the cost price of your investments.
SIP helps in averaging the cost as equal amount is invested regularly every month at different NAVs. When markets are down you get more number of units and when the markets are up you get less number of units. Hence, over all the prices gets averaged out.

Rs 5 Lakhs invested for 5 years at an annualized return of 12% will yield a corpus of Rs 3.8 Lakhs. The same money spread over 20 years at a monthly instalment of just Rs 2,080 will yield a corpus of Rs 24 Lakhs. You do not need a sufficiently large investible corpus to create wealth, investing from your regular monthly savings, even if it is a small amount can help you create substantial wealth. This is the essence of systematic investments. The power of systematic investment is unlocked through compounding and the key to its success is discipline. Mutual fund Systematic Investment Plans or SIPs is a proven way to create long term wealth from your regular monthly savings.

SOME MYTHS RELATED TO MUTUAL FUND INVESTING VIA SIP

Myth-SIP works only for Equity funds because it takes advantage of volatility through Rupee Cost Averaging.

Fact- Remember the essence of SIP is the power of compounding; rupee cost averaging is an auxiliary benefit. SIP advantage works same for Debt Funds also. Debt as an asset class also brings volatility which can be enjoyed by you using SIP rupee cost averaging.

As Per Asset Allocation and Risk apetite even Debt can be advised for Long Term. SIP in Debt Funds works really good for long term using the same advantages of SIP. Indians by nature traditionally have used RD as Systematic Tool under Fixed Income Bucket.

Myth –Do not Invest when the markets are low, it will cause a Loss

Fact – Invest when markets are down and get more units at a discounted NAV

Many People believe in this myth and it still prevails today. But the fact is, when the market is down ,you get more units at a discounted value .This extra units will be useful when the market goes up again .this is known as rupee cost averaging, SIP provides this benefits, it buys more units when markets are down, buys less units when markets are up.

EXAMPLES OF POWER OF COMPOUNDING

If You invest Rs 8000 in a fund with an assumed rate of return from the fund 12%

From the above table , we can see that the opening balance principal + interest on that return gets calculated and so on. It is something like 1 becomes 2 becomes 4 become 8 and so on ….

As we said it is the Time spent in the market creates enormous wealth rather Timing the market not an right option. You can check Fund Value growth rate after 5/10/15/20 years.

Month

Opening Balance (Rs.)

SIP amount (Rs.)

Assumed Return@ 12% p.a.(1% p.m)

8000

80/-

8080/-

8000

160.8/-

16240.8

8000

242.408/-

24483.208

8000

324.83/-

32808.038

8000

408.08/-

(Opening Balance+ Return)*Returns

Time	Fund Value
After 5 years	6,59,890.93
After 10 years	18,58,712.61
After 15 years	40,36,608.00
After 20 years	79,93,183.35 !!

Develop the habit of financial discipline using – Goal Based SIP Investing

Many Financial Planners Have coined the term – Target Investment Plan .Target Amount – Amount required for the Goal. Period-Time In Hand to achieve that goal, thereby calculating SIP Amount required p.m to get the required amount post completion of Time Period. Contact Your advisor who can assist you in telling you the Near to correct SIP amount investment required for your Financial Goals

Financial discipline is rarely something anyone is born with neither It is taught in school as any subject. We have to work on it.

Let us take the example of goal-based investing. A newbie investor may start a small SIP to invest a certain amount over 5 years to achieve a goal. However, after 18 months, this individual may be tempted to buy a new laptop and would be falling short of some amount. If this individual decides to redeem the corpus which has been created so far, he may not only lose the opportunity of creating more wealth but would also fall back on his efforts to achieve his goal. Therefore it is critical to adhere to financial discipline when it comes to investing. Starting small makes it easier to get used to this. It is worth creating a habit of putting aside a small amount.

BENEFITS OF STARTING THE SIP INVESTMENT EARLY

Name of the Person	Start Age	Retirement	No. of years invested	Amount invested per month	Total amount invested(Rs.)	12%p.a.	15%p.a.
X	25	60	35	Rs. 5000	21,00,000.00	3,24,76,345	7,43,03,225
Y	30	60	30	Rs. 5000	18,00,000.00	1,76,49,569	3,50,49,103
Z	35	60	25	Rs. 5000	15,00,000.00	94,88,175	1,64,20,368

Investor X started at age 25. His corpus at age 60 @15% p.a. is Rs. 7.43 crores approx.

Investor Y started at age 30. His corpus at age 60 @15% p.a. is lower at Rs. 3.5 crores approx.

Investor Z started at age 35. His corpus at age 60 @15% p.a. is much lower at Rs. 1.64 crores approx.

5 BASIC POINTS TO KEEP IN MIND AS KEY LEARNINGS

Start Now: You can see the cost of delay, in a mere 5 years between X and Y.

Invest long-term: Power of compounding is the 8th wonder of the world (Einstein)-The longer you invest, the more you accumulate. X invested the longest time, resulting in the biggest corpus.

Invest regularly and remain invested: Discipline is key when it comes to saving. All 3 invested Rs. 5000 every month.

Don’t be affected panicked by market volatilities: SIP’s will help average out the cost of your investments. (Rupee Cost Averaging)

Easy on the pocket: You don’t need a lumpsum -a small amount every month counts a long way.

MF Resources

Financial Calculators

Important

Tag: sip

What Could Move Markets In 2022?

TIME IN THE MARKET IS MORE IMPORTANT THAN TIMING THE MARKET

Market timing has its Disadvantages

Time is Investor’s Best Friend

Patience while Investing Pays BIG TIME!

TIME is a superpower. It works well even for the most Unlucky investor!

Summing it up

HARNESS THE POWER OF COMPOUNDING AND RUPEE COST AVERAGING USING SIP

About Us

Quick links

Our Service

Get In Touch