Hello Readers!
How are you all?
There is a famous quote, by Warren Buffet, - “Be fearful when others are greedy, and greedy when others are fearful”.
We all are aware of the current slowdown of the Indian market and GDP (Gross Domestic Product), and its impact on the Indian economy, from the last 4 quarters. Many a thing is there that is affecting the Indian economy, like weak tax collections, ongoing NBFC crisis, and the weak stock market since Jan-2018. Trouble arises when investors at the time of slowdown, get fearful and start taking adverse decisions for their investment, like redeeming their fund and achieving low return, sometimes maybe no return.
Well, the famous quote by Warren Buffet completely explains the situation of the slowdown market. According to him, investing at the time of a weak economy can be beneficial, and it is necessary for the fearful investors, to understand the whole scenario, about how it is good to invest when the economy is weak.
Here we are discussing the three major reasons, why it is good to invest when the economy is weak, read to know about them:
Markets Are Cheap
Elders always say, buy things at their cheapest cost, similar case is in mutual funds, advisors always advise, do invest your money in the fund when its market value is at its low, this will help you add more and more units of asset, in your portfolio, and more the units in your portfolio, bigger will be your return from your investment.
Growth Will Revert
The Indian Economy is on a long-term growth trajectory. Currently, we have a large working population as a youth, that are in their growing period and up-skilling themselves, and in the coming years will be working more efficiently and earning much as compared to the current earning. Ultimately their efforts for themselves will indirectly contribute towards the growth of the Indian market and economy. Thus, it is said when you invest in a weak market, you invest in the future of the market, that is going to shine in the coming future.
Accelerated Growth Catch Up
It is obvious in any country, when the economy slows down, corporate earning fall more drastically. A similar situation occurred in India when the GDP growth slowed down from 7% to 5%, many businesses saw sales fall and profits fall even more. The reason stated behind this was:
- Many companies have a fixed cost which they need to bear, at the time of revenue fall, while the company continues to bear its fixed cost, its profits fall even further, and the margins exhibited in such a situation tend to be less than long term margins.
- While some companies work through a distribution system and when demand falls, the distributor reduces inventory in the system that leads to a sharp fall in revenue for the company.
But, the drastic change in the revenue is again seen when the growth reverts. Inventory re-stocking, returning consumers lead to much higher sales growth, which ultimately leads to fast growth in the economy of the country. Earnings grow faster than sales growth as margins expand.
With funds being cheap, the possibility of increased revenue growth rates when the economy recovers and even higher earnings growth rate in this period are the facts that completely explains the statement quoted by Warren Buffet.
So basically, don’t drift your mind if you are planning to invest in mutual funds, just because the market is performing low, and the economy is on a slow track. Invest in mutual funds, carry your investment for the long-term and get a good return on your investment.
You can contact us at Shri Ashutosh Securities Pvt Ltd., for any assistance, we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).