Navigating Turbulent Times: A Guide for Retail Investors during US Elections, Middle-East Crisis, and RBI Policy

 

Navigating Turbulent Times: A Guide for Retail Investors during US Elections, Middle-East Crisis, and RBI Policy

In 2025 and beyond, retail investors will require strategies for addressing our global challenges. Returns in the Indian stock market over the last two to three years have been nothing short of spectacular but red flags are popping up everywhere from overconfidence amongst myriad investors to business pages in the Indian media ignoring very real economic recession in the global economy. Always keep in mind that some luck is involved and the market can always respond negatively to bad news.

This bull market is less about fundamentals and more about liquidity, and many names are hardly priced on fundamentals at all more like on momentum creating bubbles in many, not all but many, names. With the changing world such as the new US election, the Middle East conflict, and the Ukraine versus Russia war it deserves to be careful in this world.

on balance, I remain bullish on India, but one should temper enthusiasm. On the long run, India's story is bullish, however on a short term basis, we must be careful and play with this scenario!

The international economic landscape has become rather complicated, with geopolitical tensions, inflation and changes in monetary policy in various parts of the world. Here are some of the important aspects that retail investors need to look into:

 

FII Outflows: 

FIIs  ₹88,818 crore net sold in Oct and shifted to cheaper markets like China and Japan. This trend has alarm bells ringing about exodus of capital from Indian equities.

Valuation issue: 

The BSE Sensex and Nifty50 were trading at 24.1x and 23.7x trailing 12-month price-to-earnings (P/E) ratios respectively as of October 28, 2024. India's long term narrative remains strong and earnings are expected to catch up with these valuations however investors need high humility in their sector selection as past outperformers may not repeat their previous success as the marginal offenders move over to the new ones.

Corporate earnings:

The ongoing festival season, especially Diwali, may lend some support to sentiment in select sectors but overall corporate earnings will need to deliver in-line with expectations to justify present valuation levels.

Geopolitical Tensions: 

The persistence of conflicts in the Middle East and Eastern Europe underscores the strength of the market. Yet, the markets do react to global events in very unpredictable ways, thus formal caution is a must with investors.

Persistent inflation and changing interest rates are going to be one of the driving forces of the market. These factors are important to know for making investments wisely.

Understanding the impact of US elections on the stock market:

 

The upcoming US presidential election holds significant implications for India. Statements from candidates indicate that a Republican win by Donald Trump might lead to increased tariffs on Indian exports, while a victory for Democratic candidate Kamala Harris could improve trade relations and strengthen defense partnerships. Both scenarios could influence the stock market, but likely only in the short term.

Startup IPOs:

The landscape for startup initial public offerings (IPOs) in India is changing, with companies like Swiggy and OYO gearing up for market entries. While high-profile listings can generate excitement, investors should exercise discernment. Past examples, such as the Paytm IPO, the 2008 Reliance Power IPO, and the recent Ola Electric IPO, remind us that not all high-value IPOs guarantee success, so it’s wise to proceed with caution.

Key considerations for retail investors:

Despite the obstacles, retail investors can capitalize on opportunities by refining their investment strategies. Diversification is key. Take a moment to assess how much of your portfolio is allocated to equities and whether it aligns with your long-term financial objectives. Why get caught up in market noise when you wouldn’t stress over daily fluctuations in your real estate investments?

Navigating Turbulent Times: A Guide for Retail Investors during US Elections, Middle-East Crisis, and RBI Policy

 Caution with Influencers

 Evaluate whether the advice you receive comes from genuine experts or those merely creating hype on social media. It’s surprising how many people offer guidance on health, parenting, and investing without real-life experience. Would you trust someone who isn’t married to advise on a healthy marriage, or someone without children to provide parenting tips? Just as you wouldn’t depend on a correspondence course to learn to swim, you shouldn’t rely on shallow advice for matters that significantly impact your life. Seek out true experts, not those simply selling courses for profit.

 

Many influencers promote the idea of renting everything—from cars to homes—while broadcasting from their own vehicles or living rooms. Remember, personal finance is precisely that: personal. You need a customized financial plan tailored to your unique circumstances and goals, not a one-size-fits-all solution. While a generic plan might work for someone in their 20s, it’s crucial to adjust your strategy as you progress through different life stages.

Focus on What You Can Control

 

Regardless of whether you're in your 30s, 40s, or 50s, it’s essential to evaluate how your savings are allocated—specifically, the balance between equities and other assets like real estate, gold, or fixed deposits. If the majority of your savings are outside the stock market, does it make sense to be concerned about daily market fluctuations?

 

Instead, consider gradually increasing your equity exposure through mutual funds, especially if managing individual stocks is too time-consuming or requires more expertise than you have. Stay focused on your primary income source—your job or business—and clarify your investment approach: Are you investing or speculating?

 

Determine Your Investment Amount

 Assess how much you plan to invest and how it fits into your overall net worth. If your equity allocation is low, think about gradually allocating funds through mutual funds using systematic transfer plans.

Diversification as a risk management strategy during turbulent times:

Ensure your portfolio is well-diversified across different asset classes to minimize risk. This is crucial for maintaining a robust portfolio.

Mutual Funds Strategy

 Allocate a portion of your investments to equity mutual funds to capture growth potential. Systematic Investment Plans (SIPs) can help with rupee cost averaging, especially beneficial in a volatile market. You might also consider using a Systematic Transfer Plan (STP) to deploy funds gradually. However, remember that market corrections can offer valuable opportunities. Being ready to invest during market dips, rather than strictly adhering to a standard STP, can distinguish a savvy investor. While timing the market is challenging, strategic investments during significant corrections can enhance your returns.

For long-term growth, consider multi-cap, flexi-cap, or mid-cap funds, which typically offer a higher risk-reward profile compared to large-cap or balanced advantage funds. Choose funds based on your risk tolerance and maintain a balanced asset allocation to ensure alignment with your financial goals. Make informed decisions to maximize your portfolio’s potential.