Stock investing can be frustrating at times. It will test the patience of investors. Seasoned investors are aware of this; but newbies are totally ignorant of this characteristic of the market. Now we are going through a frustrating market phase. Newbies should understand that it is important to weather the storm in the market with patience and discipline. Remaining invested, continuing with SIPs and selective calibrated buying in quality stocks is the ideal strategy in these frustrating and challenging times.
The importance of remaining invested and continuing with SIPs needs to be emphasized, particularly for newbies who flocked into the market after the COVID crash. They have not witnessed any major correction in the market and are, therefore, totally disappointed at any significant market setback.
It is important to understand that the returns from the market are never linear and regular; they are very irregular and sometimes very bumpy. There have been long periods of poor or modest returns from the market, and then the market surprises with a period of super normal returns. Sensex took 27 years (from 1979-80 to 2006) to touch the 10000-point mark. Then in one-year, Sensex doubled to 20000 by the end of 2007. Similarly, during the nine-year period from 1994 to 2003 the Sensex remained flat at around 3300. Then in the next five-year period from early 2003 to end 2007 Sensex multiplied six times from 3300 to above 20000 level. Investors who miss out on such mega rallies miss out on incredible wealth creation opportunities. This is the reason why remaining invested and continuing to invest systematically are important.
In the ongoing highly volatile phase since the start of the war in West Asia, Sensex jumped by 1000 points and above on three trading days. Investors who panicked and sold out, lost the benefit of the rebound. The real benefit of remaining invested and continuing systematic investments will be realized when the situation comes back to normalcy, which is inevitable. This is the big lesson from the market crashes like the COVID crash of 2020, the GFC crash of 2008 and the tech-bubble burst of 2000.
Have the investors learnt this important market lesson?
There are reasons to believe they have. Data regarding mutual fund inflows indicate that Indian investors have matured. Flows into equity funds touched a high of Rs. 40450 crores in March this year. Perhaps, more importantly, monthly SIPs in March set a new record of Rs. 32087 crores. This is a sign of maturing of Indian investors. It is important that this healthy trend should continue. However, there are some negative trends, too. NSE lost 3.5 million active demat accounts in FY26, predominantly from discount brokers. Negative returns from the market during the last 18 months, high volatility, stricter rules for derivative trading and losses from derivatives trading may be the reasons behind this exit of newbies. Another negative trend is the SIP stoppage ratio exceeding 100 percent in March; that is, the number of SIP accounts matured or stopped exceeding the number of new accounts opened. Stopping SIPs is the wrong thing to do in this weak phase of the market. The market may continue frustrating for some time. The benefits will certainly flow; but may take longer. High valuations and modest earnings growth may pose challenges in the short run. Therefore, patience is the key.
