Market fluctuations are a normal part of investing. While they can sometimes cause concern, especially during periods of heightened volatility, understanding the underlying causes can help you make more informed decisions and provide a sense of certainty about what to expect moving forward.
The Momentum-Driven Growth of FY21-24
The past few years were marked by unique market conditions. Corporate earnings soared to cyclical highs, driven by pent-up demand unleashed post-pandemic and further amplified by global stimulus measures. Consumer spending surged, liquidity was abundant, and businesses experienced a significant rebound. These factors created an environment of extraordinary growth that drove market momentum.
For instance, Adani Enterprises traded at a high price-to-earnings (P/E) ratio of 100.59, indicating that its valuation was significantly influenced by market sentiment—referring to investor enthusiasm and optimism driven by speculative expectations, media narratives, and momentum trading—rather than fundamental earnings performance.
What's Driving Your Portfolio's Fluctuations
The Earnings Reset: Your portfolio is currently navigating a market reset phase after the momentum-driven growth of FY21-24. During this time, corporate earnings surged due to pent-up demand and stimulus-fueled recovery. However, as markets recalibrate, earnings are being realigned to their historical norms. (Recent data shows a slight 0.6% YoY decline in profits, indicating this adjustment.) While this phase might feel unsettling, it plays a vital role in setting the stage for your sustainable, long-term growth. Sector-Specific Impacts: Certain sectors in your portfolio can feel the effects of sharper corrections due to rising input costs and subdued demand. While this can increase volatility, these areas often hold significant potential for recovery and growth as structural trends take shape. It can also be termed as a short-term discomfort for long-term opportunity.
Broader Market Dynamics: External factors like geopolitical tensions, inflation concerns, and central bank actions have also added to market volatility. Slower corporate profit growth may impact sentiment, and you might notice this reflected in your portfolio’s performance. These fluctuations are part of broader economic adjustments and can present opportunities to align your investments with emerging trends by entering sectors at right value points.
Why Market Resets Are Vital for Long-Term Growth
Markets function in cycles, and periods of exuberant growth are often followed by phases of normalisation. This reset serves a dual purpose: Cleansing Market Excesses: During growth surges, valuations often outpace fundamentals. By resetting earnings, the market corrects these excesses, creating a more stable foundation. Preparing for Sustainable Growth: Normalisation paves the way for future expansion. By aligning corporate profits with realistic growth trajectories, the market reduces the risk of inflated expectations.
What Does This Mean for You?
We understand that market fluctuations can feel unsettling, but remember—they are only a temporary phase in the bigger picture of the market cycle. This is not the time to step back; it’s the time to plan ahead.
Your Portfolio’s Positioning: Your portfolio is thoughtfully aligned with multi-cap strategies, including selective exposure to mid and small caps. This is a deliberate move to ensure you’re ready to benefit as the market transitions through this reset phase and sets the stage for the next growth cycle—expected to unfold in the coming 12–24 months.
Strategic Allocations for Quality: We have strategically included allocations to sector-specific opportunities in consumption, technology, and pharmaceuticals. These sectors are well-positioned to deliver quality growth, and your portfolio is designed to capture this quality momentum as the market recovers and gains acceleration.
Why Staying Invested Matters: Market cycles are inevitable, but history shows that staying invested through periods of volatility often leads to better outcomes.
The Way Forward
At this stage, deliberate and thoughtful steps are being taken to position your portfolio effectively by transitioning from growth to quality. By identifying the right value pockets and leveraging the ongoing market correction, we are uncovering opportunities that align with long-term structural growth stories.
The focus is on looking past short-term market noise to ensure your investments are aligned with long-term growth trends. This is a time to reflect, recalibrate, and take decisive actions to strengthen your portfolio, supported by periodic rebalancing and continuous monitoring.
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