It is said, ‘the night is the darkest before dawn’, and like many walks of life, the same philosophy can be used in the equity markets.
Over the years, it has been observed that markets reward patience and after a massive fall, even during a war-like scenario, the markets generally recover in around 6 months, a report by KR Choksey noted.
These scenarios sometimes create much-needed corrections in structural bull markets and present a great opportunity to long-term investors to allocate additional capital in equities, it added.
"We would also like to draw your attention to one behavioural aspect of investors, we have well-documented evidence to suggest that highest equity inflows happen at times the bull markets are peaking and maybe running into headwinds while substantial outflows take place when equities are either sideways or in correction mode. We strive to build awareness around avoiding such herding behaviour and urge investors to follow an approach contrary to what is described above," the report advised investors.
As per the report, Indian equity markets lost around 36 percent in the late 1990s during the Gulf war, however, by September 1991, the market had recovered and surged over 300 percent regarding patient investors.
Similarly, during the Afghanistan War in 2001. The Indian markets lost around 37 percent between March 2001 and October 2001 but recovered and rose around 20 percent since November 2001 and March 2002, noted the report.
Meanwhile, during the Iraq War in 2003, the decline during the war (between Nov 2002-April 2003) was around 16 percent and the recovery post-war (from April 2003 - October 2003) was around 65 percent, the report informed.
The report further observed that after a Bull market Nifty usually corrects 31-37 percent on an average and the recovery post bottom formation takes about 4-6 months in case of War crisis & around a year or two in case of consequential events.
Analysing big Bull rallies in the past, the report noted that on average Nifty has gained 145 percent from the previous lows and subsequently corrected by 31-37 percent from its peak.
In the current scenario, Nifty has rallied 148 percent from its lows in March 2020 but has corrected around 13 percent from its peak, hit in October 2021.
Going ahead, KR Choksey believes that the India story is very much alive and kicking which is led by government policies and increased capex spending across sectors.
As history tells us, the BFSI sector outperforms during interest rate hike regimes and the brokerage has positioned its portfolio to be overweight in that sector. In addition to this, it has taken targeted exposure to Autos which has seen a prolonged down-cycle over the last 3-5 years.
Given the thrust by the government on housing in the recent past and the renewed push to the infrastructure sector, the brokerage is also positive on home builders and the construction space.
While rising crude prices and worries of inflation will lead to volatile sessions until the dust settles, the brokerage sees further investment opportunities in such conditions and advises investors to make use of the same.
It recommends investors to ignore the noise and stay put with their current investments.
"We as a fund house plan to deploy cash strategically and use the current dip to buy high-quality stocks in a staggered manner. We recommend our clients to do the same, as it said in times of war, ‘do not let a good opportunity go begging!'," added the report.