Economic Slowdown: Opportunity or Disaster?

In October 2021, the Nifty index scaled to its all-time high of 18604. The stock market became the talk of the town. The common man on the street became the expert. The panwala started giving tips on which stock to buy. There was euphoria everywhere. This is what is called madness, exuberance, and excitement.

When the market reached a peak, the TV pandits started forecasting the index levels. It’s fun to see them at this juncture. Someone will say that by next year we will definitely see Nifty reaching the 20000 level. What confidence? Everyone is thrilled.

But eventually, the market has its own way of behaving. It has no emotions. It does not listen to anyone. However, when such exuberance builds up, the chances are that the market is likely to fall. We have seen such things happening in the past many times. This time too, the same episode was repeated.

From the high of 18604, the Nifty tumbled down to the low of 15183 in just eight months. A significant fall of 3421 points. But the funniest part is that when the market falls, many reasons were discovered and attributed to this. The market falls first, and the reasons are found later.

When the Nifty was at its lowest at 15183, few experts predicted that it may go to the levels of 12,000 or even 10000. Again, the market proved them completely wrong and it went up to the new high of 18887.

When Nifty touched 18887, experts forecasted the move towards 20000. The market proved them wrong again. Nifty crashed to the low of 17255 in just three months. And now we are staring at a Nifty level of 17400.

Let us have a look at the Nifty movement:-

Time and again it is proven that in short term, no one on this earth can predict the market and no one can time the market. The market will always surprise you. It is futile to forecast its movement. And if you are a long-term investor, then you need not bother at all about this short-term volatility. It is the nature of the market.

So, rather than predicting the market, it is wiser to analyze the situation and be prepared for the probable outcome. Doing a probabilistic estimation of the future scenario is always better than hazarding a guess of the index level.

So, what does the current situation looks like?

1. Likelihood of a global recession

2. Pink slips are visible again

3. The US Fed is increasing the rates

4. RBI is following the Fed

5. Interest rates are inching upwards

6. Inflation is peaking

7. Ukraine war is still ongoing

8. Growth is tapering

The situation seems to be a bit concerning. We need to be watchful. Considering the scenario, the market is more likely to go down further than go upwards. That means the probability of the market going down is higher than the probability of the market going up.

So, what should investors do now?

1. Do not buy every dip.

2. Do not buy stocks thinking they have become cheap. Who knows they can become much cheaper from here.

3. Buy stocks only if you have the knowledge, time, conviction, and courage.

4. If you are a SIP (Systematic Investment Plan) investor, you need not worry at all. Continue with the SIP.

5. Have enough cash in hand to deploy at the opportune time.

6. The market is likely to provide this opportunity sooner or later.

7. If the market falls further, then invest additional funds into your mutual fund portfolio in a staggered manner.

8. Do not deploy this cash in one go.

9. Deploy this cash in tranches.

10. A 25% add-on for every 1000 points fall in Nifty may be a good strategy.

Are we heading toward an economic slowdown? Maybe yes. There is a probability that we may go through an economic slowdown for some more time.

So, is it an opportunity or a disaster?

The wise old man, Warren Buffet said, “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”

So, listen to the old man, get a bit wiser, and be prepared to encash on this opportunity!