Starting from the post-pandemic market recovery till today we have seen insane volatility in the Indian stock market because of various bullish and bearish factors. Some of the supply-chain issues, war threats, crude oil prices, FII selling and slowdown estimates have created a periodic panic(bearishness) in the market and this bearish news is followed by positive news like growth opportunities, business prosperity and stable politics which has created a sense of bullishness among the investor and trader community. This bullishness is responsible to drive the market upwards irrespective of the global economic and geopolitical tensions.
As said by top economists, policymakers, large corporations and other key market participants, this decade is India's decade and there is no doubt about it. Because of increased skilled labour, due to the increased number of KPOs, the growth of manufacturing industries and for various India's growth story is clearly visible unless there is a global recession or war-like situation.
7 things to watch for in the current situation
Any major action in the war situation with Russia-Ukraine will have an implication on crude prices which will ultimately have an impact on the earnings of Indian companies since India is a net importer of oil.
Tracking the activities of FII who just returned to Indian markets after a long duration sell-off in the last 1 year(approx.).
Macro challenges like inflation, slowdown, and unemployment in the US and Europe may hurt the Indian stock markets as well.
High valuations of the companies in the Indian stock markets have created a sense of insecurity among various classes of investors. Although this is not a real problem in stock markets for the long term but surely a thing that one should consider before investing because of the impact of YOY earnings.
Keep an eye on the volatility of markets if your investment is for a short period. (Pro tip: Don't play in the market during a time of uncertainty and high volatility if you don't have experience and sufficient knowledge about the operations of the market. You may end up losing most of your invested money)
One also needs to be slightly cautious on export-oriented sectors/companies as their business arises likely to get affected in case of a global slowdown because of demand and supply forces.
September will be a crucial month as there will be figures and estimates of macro data coming for domestic and global fronts from various national and international organizations.
The common ignorance that retail investors like you and me do is that they completely ignore to differentiate between the type of companies(whether small, mid or large cap) and do not assess the risk on their capital before investing during any normal situation. And many of us get carried out by famous names and window dressing activities of companies. As said by a famous investor, "there is no place for sentiment and emotions in the market. A market is a pure play of profit". The reason for discussing this is, in the time of crisis, STRONG FUNDAMENTALS play a huge role in the market and in general it's the blue-chip(large cap) companies that will be less affected during any major market movements (Recession/Slowdown/Market Crash).
Refer to the table below to have an idea of the SMALL, MID, and LARGE cap companies:-
Stock classification | Market capitalisation | Volatility in stock price | Growth potential | Capital Risk |
|---|---|---|---|---|
Large cap | 20k crore+ | Less | Stable | Low |
Mid cap | 5k-20k cr | High | High | High |
Small cap | Below 5k cr | Very High | Very High | Very High |
Final Words
We do expect interesting times ahead as there are various challenges globally. And we expect the markets to continue to remain volatile. The Indian economy, though, seems to be relatively better positioned and has done well compared to other emerging and global peers. However, it's time to exercise caution considering the pullback we have seen in the last few months. Indian markets have rallied around 20% in the last two months despite the global challenges surrounding India. As of now, any negative surprise to the investors could derail the rally. So, it's better to be slightly cautious and invest your money smartly by diversifying your portfolio and investing in blue-chip and some safe mid-cap companies having strong fundamentals. (we have already published an article on how to diversify your portfolio. You can check it out on the main menu of NerdyTree or directly click this link https://www.nerdytree.com/post/the-importance-of-portfolio-diversification).
Note: This article is just a piece of the opinion of the author gathered from the information available in the public domain and his own research of the author. In any case, this is not a recommendation or advice. You are advised to do your research or contact a registered investment practitioner before taking any investment call.