The Pendulum of Greed and Fear: What’s in store for Indian equities in 2023?

It sold approximately 400 million copies worldwide.

However, few people knew that he spent the first two decades of his career writing children’s joke books, before moving into the genre of children’s horror fiction.

Why did he switch after two decades?

Well, in his opinion, scaring people was easier than making them laugh.

The observation was that everyone’s sense of humor is different. Some people liked dark comedy and some liked clean comedy. It’s very personal.

Take the example of stand-up comedians in India as well.

In my opinion, every comedian has a set of audience that he targets with his stand-up act.

Some cater to the college crowd, some focus on politics, while others have an interactive session.

The point is, while everyone’s sense of humor is different, we all have the same fear.

The author’s premise was that all children are afraid to be in the dark, afraid to get lost, afraid to be in a new place.

Those fears are pretty much constant.

Therefore, it is easier to target something generic like greed and fear rather than humor or any other genre that is subjective and may be wary from person to person.

It reminds me of the Hindi movie PK, where the protagonist Aamir Khan took advantage of fear to make money.

If you apply this to the stock markets, aren’t we dealing with the story of greed and fear all the time?

Capital markets have always functioned on the basis of greed or selling fear and making money out of it.

The point is, how do we benefit from greed and fear? After all, we are in the business of making money. Our job is to make the most of market sentiment.

So how do we do that?

While the answer is simple, I want to go a step further and highlight two things here.

in both greed and fear Share Market There are always overdues.

Making money out of greed and fear involves timing the market.

many people talk buy and keep forever,

Well, in my opinion, buying and holding forever rarely works.

In fact, timing the market is just as important as timing the market.

Even in non-cyclical sectors like FMCG, which are considered safe, the buy and hold concept fails forever.

Let me give you an example.

Consider Hindustan Unilever Limited (HUL).

I am sure the initial thoughts that come to your mind would be ‘safe stock’ or ‘quality company’ or ‘stable returns’.

Let me share some interesting facts about HUL.

From 2002 to 2010, HUL’s share price went nowhere. Stock went into an 8-year coma. The post-dividend returns can hardly even cover inflation.

The reason why HUL did not perform during this period was ‘greed’.

The period from 2002 to 2008 was a golden period for the economy with largely favorable winds for the capital goods sector. Every sector related to infrastructure and capital goods was booming. In fact real estate was on a roll.

It is pertinent to focus on sectors in favor during such times, which were economy related stocks and not safe stocks like FMCG.

If you had invested in BSE Capital Goods Index in 2002 instead of HUL, you would have earned returns of over 3,000% – 83% CAGR (Compound Annual Growth Rate) in the next six years.

While this was one side of the story dominated by greed, the other side is favored by fear.

After the 2008 financial crisis, the fear was at its peak. Hence the FMCG sector became the darling of the market.

Basically, it was a change from ‘at risk’ to ‘at risk off’.

The BSE FMCG index delivered a steady 15% CAGR over the period 2012-2018, when the capital goods sector was stagnant.

Basically, Risk is a play on fear. This resulted in money moving from capital goods and infrastructure to sectors like FMCG.

I started the article with the two basic ingredients needed to make money in the stock market – greed and fear.

Giving time to them will help us to make a lot of money. So let me answer the million dollar question…

Where are we now in the pendulum of greed and fear?

In my humble opinion, 2023 is likely to be driven more by fear than greed.

Three months before 2023, the benchmark Nifty has come down to the level of 17,400. Nifty is already at 16,000 level among midcap and smallcap investors.

Imagine if Nifty fell to 16,000 level. For this only 7-8 per cent correction is required. It depends on factors such as interest rate decisions of the US Fed.

The issue is not how long the US Fed can keep raising interest rates. I am sure the end of rate hikes is near.

The question is… how long is she going to keep those interest rates high before she starts cutting rates?

With inflation stagnating in the US and even India, interest rates are expected to be higher.

In such times, equity valuations take a hit as money moves into bonds and FDs and stays put.

What should investors do?

It is said that during recessions and high interest rates, the stock markets have limited hiding places.

However, with higher interest rates, the Indian rupee is expected to depreciate against the dollar, which will benefit IT stocks.

Most IT stocks have fallen 30-40% from their 2022 peak and offer good risk reward ratio on the valuation front.

The impact of the recession in the US is mostly in price Indian IT stocks,

2023 may not be a very good year for the market. But I believe that you should still make the best use of the circumstances we have in front of you.

Look for bull time opportunities in select stocks on your watchlist.

If you believe in ‘buy and hold’, look for fundamentally good stocks for the long term and buy them when they fall to attractive valuations.

Disclaimer: This article is for information purposes only. This is not a stock recommendation and should not be treated as such.

This article is syndicated equitymaster.com