Last year has been a year of strong performance after a subdued 2022 for equity investors. The Nifty 50 index, the Nifty Midcap 150 index and the Nifty Smallcap 250 index have given impressive returns of 21 per cent, 51 per cent and 61 per cent respectively in the last one year. Generally speaking, investments in micro cap, small cap and midcap categories were more rewarding as compared to large-cap companies.  

Along with the small and mid-cap stocks, one segment of the market that attracted high investors’ attention was the Initial Public Offering market. Blockbuster listings during the year attracted many new investors to the market. Speculating on an IPO stock for listing gains has become a favourite indulgence for many. More adventurous souls are dabbling in futures and options for enhanced returns. Strong equity returns post Covid have attracted many new investors to the market with participation going up both in cash and derivatives segment.  

Social media platforms and youtube are full of stories on how some of the fin-fluencers/investors/traders have made it big in the market by following certain strategies. All this seem to have created an illusion that making money in the market is easy and akin to a T20 cricket match, where results are quick.

Though the year has been rewarding, investors need to be careful in extrapolating performance of 2023 into 2024.In this euphoria, it is very easy to extrapolate returns and recent successes in future and ignore risks.

No doubt, fundamentals for Indian markets are strong. Opportunities arising from favourable demographics, digitisation, ongoing reforms and turn around in investment cycle are real. Corporate balance sheets have significantly de-levered and NPAs in banking system from previous cycle are recognized and provided for. However, returns are not likely to come in a upward sloping straight line. There will be periods of volatility, time and price corrections.  Apart from company specific factors, there can be number of unpredictable events like Geopolitical events, election outcomes, surprises on inflation & interest rate trajectory that can potentially impact markets as a whole.

As they say - The thing with risk is it comes when no one expects it. So, whilst the outlook for Indian equities is positive from medium to longer term, the question is - are investors prepared for the volatility and drawdowns that will surely come along the way?  

Remember what Naseem Taleb says, ”Invest in preparedness and not prediction.” So, how can investors remain prepared for the risk which will invariably playout but is unknown today in terms of how and from where it will come. Let’s look at few things that investors should remember that can help them navigate 2024.

Volatility – name of the game

Equity is a volatile asset class where returns are probabilistic. High risk creates possibility of earning higher returns but does not necessarily guarantee high returns. Hence, take risks keeping in mind your own risk appetite. Remember to make money in the long term, you have to survive the short term.

Own business, not stocks

Invest in businesses, not stocks. Stock prices reflect fundamentals of underlying businesses. A business which can grow sustainably over long term, run by a strong management team, is capital efficient and bought at reasonable valuations is more likely to create wealth for investors over longer term. Investing in fads of the season and participating in price momentum build on narratives bereft of any fundamentals are bound to end up badly.

Invest for the longer-term

Invest with a longer time horizon in mind. There is enough data to prove, the longer one remains invested in markets, the higher is the probability of making superior returns. In near term it is very difficult to predict direction of stock prices, they are influenced by number of factors. The key to making money in the market is to invest from a longer term perspective and not try to time the same. Remember the famous adage – Time spent in the market is more important than timing the market.  

Control your emotions

Last but not the least, control your emotions, viz., greed and fear. A balanced and systematic approach to investing may be a superior way to have control on one’s emotions. Designing a well thought out asset allocation plan and most importantly sticking to it during ups and downs is one of the most important aspect of one’s investing journey.

The author is Senior Fund Manager - Equity, at Nippon India Mutual Fund

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