Sunday, September 25th, 2022

Welcome to The Weekly, where our team shares a few thoughts to take you into the week. This week’s thoughts have been brought to you by Prasanna Bidkar, Investment Specialist at Rupeeting. He manages the Rocketship and Value Migration portfolios.

What’s next for Nifty?: Lessons from 2008

The Dow Jones, CAC and DAX are all trading near their 52-week lows. But the Nifty last week hovered around its 52-week high. What we’ve been seeing is a serious case of ‘Decoupling’ - yes, that buzzword making headlines.

Two classic decoupling structures

1. The disconnect between a country’s economic indicators, and its stock market performance. The post-COVID rally was the epitome of this kind of decoupling.
2. The correlation between one asset class and another breaks after being in sync historically - like what is happening now with the Indian markets performing well while the global markets go through a carnage.

Why are the Indian markets going through a decoupling?

• The great Indian growth story, with its rising middle class and surging domestic demand, has been at play
• As the fastest growing economy, India remains an unparalleled investment destination
• Political stability and policy support have been enormously stronger in India compared to its neighbours, or other emerging markets

But wait, wasn’t the India story there in 2008 as well?

Yes, and no! What happened in 2008 with the Indian markets? India had a lag, but when it fell, it fell more than the DJIA.

1. First, the Indian markets outperformed the DJIA, ahead of the meltdown. DJIA started falling in August 2007, but India’s peak came in January 2008
2. And after January 2008, India fell and how! For the DJIA, from the top (August 2007) to the bottom (March 2008) the fall was 54%. And the Nifty, from top (January 2008) to bottom (August 2008) fell 64%

At present, structurally, India seems to be in a much better place compared to 2008 - greater political stability, aggressive fiscal policy, and more importantly strongest-ever retail participation in the markets, which adds significant cushioning.

<aside> 💡 Our view: If history has to teach us anything, India is likely to catch up with global trends. However, we reckon, we won't see a steep and dramatic one-way fall like in 2008. Instead, we are likely to see high amounts of volatility - dips inflicted by global events, later countered by domestic strength. Amid this, waiting for discounts and buying in on dips is the strategy we recommend.

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