long term. Because in the long term it is higher corporate earnings and better economic conditions that drive the market, unlike in the short term, where any random incidents such as US-China trade wars, hike in oil prices, terror attacks, NBFC crisis etc. can affect the market. In short, long-term growth of markets is heavily dependent on the growth of the Indian economy. In the short term, markets always witness extreme volatilities. Here are a few examples:
- When Prime Minister Modi got re-elected for a 2nd term in May 2019, Sensex and Nifty touched new highs of 40k and 12k levels respectively.
- Post the introduction of enhanced FPI surcharge in the budget 2019, Sensex lost more than 7% and eroded more than Rs. 14 lakh crore wealth over the next few months.
- When the finance ministry rolled back the enhanced FPI surcharge on 26th August 2019, Sensex and Nifty moved up by 793 and 228.50 points respectively.
- On 20th September 2019 when the finance minister announced cuts in corporate tax, the Sensex jumped by 1921 points.
It is of no use trying to guess the next movement in the market. Markets are highly volatile now, and many quality businesses have corrected significantly due to recent market corrections. By investing in good quality businesses, anybody can ensure that their investment portfolio too will rise when the market rises, which it surely will over the next few years, given India’s long term growth story, strong consumption-driven economy and a reform-centric government at the center.