Why investors should focus on stock market opportunities, not volatility

The May 2014 election verdict raised hopes of an equity revival after a rough six years. However, dampened bourse sentiments have marked recent months. The fact that the Sensex, in dollar terms, has not yet touched its previous peak is a worry that can't be shrugged off easily.

However, I remain a firm proponent of the long-term virtues of equity investment. It's the best among all asset classes. That the immediate prospects are anything but bright don't take away its charm. It's a fact that the festive cheer of Diwali is not likely to reverse the current headwinds, nor the advent of 2016. There's not a single factor that holds promise of a dramatic revival.

Global issues like the prospect of a US Fed rate hike, Chinese slowdown, shale oil crisis, Russian aggression and the Middle East conflict, and domestic disappointments like suppressed earnings, mounting NPAs and the perception that the government is not doing enough, have together robbed the markets of hope. Given the situation, we see a volatile market and a dullish Sensex performance in the near to medium term.

But times like these are the ones that bring the best out of the rational investor who with conviction, courage and persistence picks and holds on to reasonably priced and fundamentally sound stocks. Long-term wealth creation happens when you trust researchbacked instincts and avoid speculation.

There are rewards in the offing for the patient investor if one focuses on the silver linings. Take the US interest rates. It may cause temporary jolts, but the rate rise would be gradual, so there's no need to panic.

China is a bigger concern because if it devalues its currency further, it can trigger another round of currency wars. Many stressed nations will then try to devalue their currencies to maintain market share and export prospects. But again, any volatility in stock prices on this account would present a great buying opportunity and India has a chance to claim the crwon of the best emerging market. In 2016, we could well see our GDP growth rate beating that of China.

Repo will move down by at least 100 bps in 2016. Inflation is under control, not just due to subdued global commodities but also by virtue of disinflationary trends at home. In the third year of the ruling government, I am hopeful the reform-led revival will gather momentum.

At a recent conference, I found Minister of State for Finance Jayant Sinha's revelations convincing and inspiring on a host of developmental issues. Of course, only in the last quarter of 2016 will we know how much of the promise has translated into performance. But I am more than certain that the fulcrum of India's politics is slowly turning development oriented, not caste.

At no cost should we ignore the macroeconomic tailwinds. Reducing current account deficit and fiscal deficit will have a resounding effect on the market. And if analysts are to be believed, commodity prices are likely to remain subdued, which should continue to help an importing nation like India.

Despite the enormous potential, Indians have been largely selling equities since 1994, when FIIs were first allowed to invest. Now retail ownership of equity is tottering at 8% of market capitalisation. The underlying tragedy is of epic proportions—our equity sellers have disposed assets fetching 14-16% return to buy gold, property and FDs, that have managed to generate mere 7-9% return.

Let's change our outlook towards equities. Let's grant them the faith and respect they deserve. Stop worrying about the market as a whole, think of the wholesome market that quality scrips offer. This way, you look at the opportunity, not the volatility. I am banking on a huge tsunami of domestic flows over the next 5 years in Indian equities. Don't worry about FPIs; they are coming home to the stars, to the only bright spot called India.

An acquaintance recently shared his sentiment. He's okay with all our country positives but the fact that India is almost a consensus buy trade around the world worries him, as wherever there is a consensus, outcomes are unpredictable. I agree! The consensus may be proven wrong—Indian growth will possibly be much higher than what the consensus predicts, which will translate into a huge market outperformance. And what's more, multiples will expand too, hopefully in the form of a 'Modi premium'. The mother of all bull markets is not too far way.

Amar Ambani's Intervierw to ET Wealth

https://m.economictimes.com/markets...ities-not-volatility/articleshow/49778430.cms