Equities are a great way to build wealth and meet your long-term financial goals. In the last three years since the Covid pandemic, the Indian stock markets have seen a surge in new investors. This growth shows that more people are recognizing the potential of the stock market to create wealth.
During this period, the number of demat accounts in India has tripled from 35 million to 115 million, indicating the rising interest in investing. Many of these new investors experienced a continuous upward market rally until December 2021, with the markets more than doubling from their Covid lows.
However, from January 2022 to March 2023, the markets experienced a slower phase with frequent corrections. Despite the challenging times, these retail investors demonstrated maturity and patience by staying invested and even increasing their equity Systematic Investment Plan (SIP) contributions. Their commitment helped stabilize the Indian markets, despite significant foreign institutional investor outflows during this period.
Investors who have recently entered the markets should keep a few essential pointers in mind as they navigate the various market fluctuations in the coming quarters:
Think Long-Term: Regardless of when you start investing, remember that the stock market is for the long term. India’s medium- to long-term outlook remains positive, but it’s crucial to understand that corrections and fluctuations are normal. Over the last four decades, the Indian stock market has experienced a 10% correction each year and a 20% correction approximately every two years. Prepare yourself for short-term surprises while aiming for good gains over the medium to long term (3 to 5 years)
Choose Wisely: In the rush to invest, don’t abandon your research. If you’re investing in individual stocks, understand the reasons behind your investment thesis and the fundamentals of the company. If you prefer mutual funds, ensure that you or the person offering recommendations do thorough research. Avoid chasing momentum alone; look for stocks with strong fundamentals to support their growth potential. Review your portfolio regularly, and remove any underperforming assets to make it more future-oriented.
Be Cautious with Risk: While small-cap stocks may seem attractive from a valuation perspective, they can be highly volatile and may not suit everyone’s risk tolerance. Making sector-specific calls is also risky, as different narratives about market trends can be equally persuasive. Retail investors are better off sticking to diversified portfolios, which offer a more balanced approach. Ensure your investment decisions align with your risk appetite and long-term goals. Avoid letting short-term greed overshadow your long-term financial needs.
Remember, it’s okay to start investing now; timing the market perfectly is challenging. Instead, focus on staying invested for the long term. Just like learning to swim, you won’t become an expert if you only dip your feet in the water; you need to dive in and participate fully to achieve significant wealth creation.
In conclusion, while markets may be at all-time highs, being a patient, informed, and cautious investor can help you ride the wave of prosperity and achieve your financial dreams in the long run. Happy investing!