FINANCIAL LESSONS FROM THE YEAR GONE BY
2021 was an eventful year for the financial markets. While early 2020 was battered and bruised by the impact of corona, falling almost 30%, the later half brought some kind of recovery and cheer to the financial markets on the back of high liquidity and promises of the vaccine. Even as the new year unfolded, the investor sentiment was back and buoyant amidst high liquidity brought about by the infusion packages of Governments worldwide.
India stood strong amongst the emerging markets and enjoyed the attention of FII's who continued to pump in more liquidity to keep the markets on an upswing. Not to be left behind, the DII's too continued to invest their savings accumulated over the corona times, and the equity markets saw huge inflows to the tune of $ 37.6 billion by the FII's alone. The investor confidence was back in the markets and even those who had never invested wanted to test the turbulence of the equity markets. Of course it helped that the small savings were giving dismal interest rates. Many millennials impressed by the stock market gains looked for greater thrills and higher returns. Cryptocurrency was the next "IN" thing as almost everyone suddenly wanted to know more about it and invest here even if they did not under stand it. Clearly for many, it was the FOMO(fear of missing out) that drove the urgency to invest in something that the Government was not yet ready to accept as legal currency.
For most part of the year, the Sensex remained over 50K, even breaching 60 K in the month of November on the back of good corporate results and the economy opening up worldwide. The party kind of became staid towards the end of the year on rising crude, falling rupee, Omicron outbreak threat and above all the all intrusive threat of the FED tightenings. As the FII's now began a sustained pull out from Indian markets, the Domestic investors were still in the party mode and continued to pump in more inflows.
The year 2021 was crucial as it brought back the confidence in the financial markets even while the world learnt to accept that Corona was here to stay in one form or another. Some of the key learnings were:
1) Lets go Digital: As most nations went into Lockdown, work from home became the new mantra. Companies and offices adopted digitisation in a big way to keep the work running smoothly. As schools became online too, most houses turned into mini work places with each member needing their own private space to work in. From online shopping to completely cashless transactions, the nation metamorphosed into its new avatar of being digitally enabled. While corporates transformed themselves, individuals too learnt to go cashless for purchases and investments.
2) Patience pays: The Indian markets presented great opportunities for the patient and disciplined investors. Unfazed by the ups and downs, those who remained invested during the roller coaster ride of 2020, saw their wealth not only recover lost ground but make massive gains. On the other hand for those who panicked and exited, the rewards were sour. Investors who remained brave during the March 2020 crisis but exited by November 2020 kept waiting for opportunities to re enter.
3) The Crypto mania: 2021 saw cryptocurrency gaining ground as more and more investors, especially millennials wanting to not miss out on this new "big thing" for quick returns. Even while the Govt hesitated to make it legal, the social media was abuzz with this new fad. With the mushrooming of multiple platforms that made investing in crypto lucrative and as easy as buying dailies, it was no great surprise that many people lost money. Investing without understanding is a sure shot way to an investment disaster.
4) The IPO rush: 2021 saw a slew of IPO's that hit the markets by mid year. Some good and some not so good but all garnered a lot of media attention. High liquidity in the markets meant that there was easy money and most IPO's were strategically positioned to take advantage of this and the investor sentiment. Many small saving investors who had become fascinated with the equity markets, pulled out funds from their poorly earning fixed deposits and invested here. Not all IPO's though turned out to be wealth creators as they failed to even get listed at the price they were opened on, reducing investor wealth on the first day of listing.
5) The FOMO on Equity markets: As the financial markets breached new highs for most part of the year, the lure of easy money pulled many investors, many of them first timers. Many became prey to self styled gurus who boasted about the best stock or the best mutual funds that they had invested in. Even while SEBI was preaching 'soch kar, samajh kar, invest kar', investors behaved as if they had found the goose that laid the golden egg. All caution was thrown to winds as people invested without due recognition of their unique risk appetite. Many went a step further and invested in futures and options only to post heavy losses later. Investing hard earned money requires caution and professional expertise.
Every event starts with the anticipation of the unknown and ends with takeaways as learnings which can be the beacon for the next. The year gone by had many learnings and it is up to us to learn from them or continue to make the same mistakes.
The outlook for 2022:
The year gone by closed on a sombre note with the threat of another lockdown due to Omicron looming large. Despite this, we are on the cusp of a strong bull run that should place India amongst the top economies of the world in the coming decades. The India growth story is strong and those who believe in it would surely benefit.
To conclude, disruptions and corrections would always be there and one should rather look at them as buying opportunities to top up and reposition one's portfolio. Corrections are times to pick up good stocks that go for the long haul. For the new and the uninformed investors, mutual funds are the best vehicles for sustained wealth creation. Invest with discipline rather than emotions and see your wealth grow.
Do take the advice of your financial advisor who can add value to your investments!
Cheers to happy investing and a Happy 2022!
Anupama Bhargava
Financial strategist and money coach
CFP(Certified Financial Planner)
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