Make the most of this opportunity

Great investments are typically made in difficult times. This is simply because markets give disproportionate weight to current challenges, adverse news flow and to short-term momentum than to valuations and to long-term market prospects. At such times, markets typically drive down market values to below fair or intrinsic levels Stock Market Trading Tips

Fortunately, the same market that is driven by sentiment in the short run behaves rationally in the long run. Investors who understand this simple nature of the markets are the ones who profit the most from equities over the long run.

Interestingly, in a connected world, the adverse news that impact the markets in the short run are not confined to local markets or the local economy. Indian markets have thus over the last 10 years or so in phases worried about US (Lehman crisis 2008 and then again in 2013), Europe, PIIGS (Portugal, Ireland, Italy, Greece and Spain), and China, among others.

It is now the turn of emerging markets (EMs). One of the main reasons for the fall in Indian equities over last few quarters is the sharp deterioration in economic conditions in several EMs, driven by a sharp fall in commodity markets. What is ironical about this is that unlike most other EMs, India gains immensely from the fall in commodity prices, especially oil. India stands to save nearly $60 billion a year (3% of GDP) due to lower oil prices. Even otherwise, nearly all the economic parameters — inflation, current account deficit, fiscal deficit, growth, IIP — are showing a sustained improvement Himanshu Tiwari Astrologer Blog

This fall has driven valuations to attractive levels. What is often missed is the massive underperformance of Indian markets compared to the economy over the last several years. The sensex is up a mere 15% in the last seven years even though the economy has more than doubled in nominal terms. As a result, the marketcap to GDP ratio has fallen to 62%, close to lowest levels that India has witnessed.

Also, given the strong outperformances of mid-caps over last few years, the risk reward is particularly favourable for large-caps/large-cap funds.

I am tempted to reproduce the following extract from a note titled "It's tomorrow that matters" written in May 2012 (sensex levels around 16,000), when markets were in a similar situation and the economy was actually in a worse condition Indian stock market astrology prediction