For a long time now, the Indian financial markets were performing exceedingly well. And then all of a sudden, in the last few days Indian stock market has been experiencing major volatility. Here is our perspective on what has been happening so far. Watch our Fund Manager videos and interviews to know their view on this topic.
Gains (in equities) do not accrue in a linear fashion. In the long term the stock market is a slave to earnings. But in the short term it resembles the outcomes of a voting machine more than it does a weighing machine which is calibrated for consistency. Economic cycles, evolving and changing businesses combined with the emotions of greed and fear create sharp moves in both directions in the market.
Forest fires always start by one of two ways - naturally caused or human caused. Natural fires are generally started by lightning, with a very small percentage started by spontaneous combustion of dry fuel such as sawdust and leaves. Fires caused by human intervention can be due a range of reasons from carelessness (for eg a carelessly dropped cigarette) to arson.
Asset allocation: The on-going equity market drop once again highlights the need for investors to follow a prudent asset allocation strategy. Every asset class goes through cycles. Equities are a volatile asset class with attractive long term returns. Similarly fixed income returns can be attractive over shorter time periods though over the longer term it typically lags equities. This reinforces the need for asset allocation in order to manage risk and optimize returns.
Change is the only constant” is an adage which applies perfectly to not just the macroeconomic environment but also to the equity markets in general. Behind every ‘fall in the market’ there will always be some events just as behind every ‘rally in the market’ there will be other events
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