Markets are running fast and at an elevated point. Many people feel nervous about the markets, especially with constant talks about potential events that might disrupt them significantly. Over the past eight years, numerous events have tested the market’s stability, causing some to wonder if it’s wise to refrain from investing.
A Look at Past Market Events
In 2016, demonetization shook the market. This was followed by the GST turmoil in 2017 and stock categorization changes for mutual funds in the same year. In 2018, the imposition of a 10% long-term capital gains tax surprised many. The IL&FS credit issue in 2019 caused further instability. The mid-cap and small-cap indices fell dramatically from 2018 to 2020, largely driven by mutual fund issues.
Covid-19 and Other Crises
The Covid-19 crash in March 2020 saw the Nifty index drop from 12,000 to nearly 7,500. Following this, the Fed rate hikes from 2022 and related liquidity issues posed new challenges. International events like the Russia-Ukraine conflict and the Hamas-Israel drama further stirred up the global supply chain and inflation. Despite these shocks, the Nifty index rose from below 9,000 in 2016 to 23,000 in 2024.
Market Recovery and Cycles
Despite these numerous events, the market has demonstrated resilience, recovering each time and continuing on its growth path. These shocks serve as a reset, adjusting market expectations and valuations, and allowing strong hands to re-enter the market. This cyclical process is crucial for long-term growth and stability.
Importance of a Long-Term Perspective
Investors must be prepared for the long haul in the equity markets. Historical data shows that there can be extended periods where the market consolidates before embarking on a new bull run cycle. For instance, the 1992 market top wasn’t significantly surpassed until 2000, and the 2008 top took until 2013 to be exceeded. These periods of consolidation are natural and necessary for future growth.
The Future Outlook
Despite the fears and challenges, if the country continues to progress towards its economic goals, such as reaching a $5 trillion economy and beyond, the market will likely remain strong. Investors should maintain a long-term vision and stay the course, as the potential for growth remains substantial.
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