Omicron, Russia-Ukraine war, Covid-related lockdowns in China, inflation concerns and central bank rate hikes. The equity markets’ journey this year has been anything but smooth. Year-to-date, the Nifty is down over 4% and is trading in a range of 18,350 to 15,671.
“It is worth noting that the past few years have been a baptism of fire for investors as violent volatility in financial markets and numerous unforeseen events have kept investors on their toes. Considering the rapidly evolving geopolitical landscape, the course change of globalization; and as central banks retreat into their role of reining in inflation expectations rather than doing all they can to support asset markets, volatility is likely to remain high,” said Navneet Munot, Managing Director and Chief Executive Officer at HDFC Asset Management Company Limited , in an article.
“Investors’ equanimity and patience will continue to be tested for the foreseeable future, but don’t we know from history that the formula for building wealth is solid investment + time + patience.”
In Indian equities, strong retail exposure (63% up in Demat accounts in FY22) and robust mutual fund inflows have cushioned the downside of the recent FPI selling spree, he said.
Overseas investors continued their violent selling spree for the eighth straight month and almost pulled out €40,000 crore from the Indian stock market in May on fears of an aggressive US Federal Reserve rate hike, which hurt investor sentiment.
This was the net outflow of foreign portfolio investors (FPIs) from equities €1.69 lakh crore so far in 2022, data with depots showed.
“Over the years, financial markets have grown accustomed to expecting the unexpected. Almost every period in the history of financial markets has been filled with events that have taken market participants by surprise. However, it would be fair to say that the 2020s have taken this to a whole different level. It’s easier to wonder how scoffing at the beginning of the year has become a habit in the first quarter of recent years. While 2020 was a year that began amid the looming threat of geopolitical tensions between the US and Iran; What had turned the world upside down at the end of the first quarter was, after all, a virus. Early 2022 when all eyes were on the proliferation of Omicron; At the end of the first quarter, the event that really shook everyone was a geopolitical one (Russia-Ukraine war),” said Mr. Munot.
In a world where new geopolitical alliances are being formed and existing ones are being tested, he adds, sound financial planning and prudent asset allocation remain investors’ best allies to counter the formidable enemy of financial market volatility.
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