stock market crash | investment strategy: Be very patient before entering the market; there is no turning back now: Arvind Sanger
Do you think the markets are likely to be on edge for a while now due to geopolitical tensions or will there be a lot more on the market mind? How to tackle the current volatility?
You have to be very risk averse at times like this because we are staring into the abyss of the unknown. We don’t know what Putin’s intentions are. We don’t know how far he is willing to go. We know that if he escalates further, there will be all sorts of retaliation from the West in terms of sanctions. We don’t know what its response to these sanctions will be in terms of whether it will use energy as a weapon to punish the West or not, whether it will use weapons in addition to being a major supplier of crude and natural gas.
Russia is also a major supplier of many metals – palladium, aluminum. They provide coal. There are therefore a lot of raw materials coming out of Russia and which can create risks that we cannot quantify at the moment. Markets will need to arrive at valuations where all of these risks are discounted. However, the markets are far from screaming shopping. One of the biggest mistakes people make is buying referrals. So we say if the markets have arrived at X and they are down 20% from X or down 25% or 15%, they are cheap. No, they are not cheap when they are down. They are cheap when they are cheap relative to long-term historical valuations – ranges and markets.
The Indian market is nowhere near levels where you can say they are cheap based on long-term value and not based on the peak they reached a few months ago. This is one of the biggest mistakes investors can make.
The question remains that at a time of this acute volatility, should one look for buying opportunities in the market or is this a decisive bear market and one should wait for the dust to settle before start snacking?
Over the last few cycles we’ve gotten used to the fact that whenever the markets get to that kind of selloff you can step in and buy knowing that the Fed and other central bankers are backing you because they’ll be rushing with cash to make sure things don’t get worse. This time is the worst of all. Bankers are withdrawing liquidity and are unlikely to change course as global risks escalate and markets sell off.
So this is unlike anything we’ve seen in a long time where you could have a simultaneous removal of liquidity due to inflation surging and the market selling off. In this sense, I would be very patient before intervening because unlike the last few times, there is no back stop.
Could there be another way of looking at things? Are you telling your customers to take money off the table?
We manage clients’ money, but we tell them that we are positioned in areas where we think the markets will help us, such as certain commodity sectors which have done very well and that is where we have focused a lot of investments in We stayed away from some of these technologies and other stocks. We position our portfolio to try to minimize some of the risk associated with some of the things that are happening right now.