Why these investors are not panicking after the stock market crash

medium118441906Seeing the market in red for more than a month now, 29-year-old Apurva Palande says, “My only regret is not booking profit in stocks like Tata Motors when they were at a high.” The shares of Tata Motors are currently down 42% from their 52-week high. But as a satisfied owner of Tata Nexon, Palande has decided to hold on to the stock a little longer.Interestingly, the market hasn’t always been unkind to this finance professional-turned-tennis coach. In 2023, he bought his Tata Nexon from the astronomical gains he made on the redemption of small-ticket SIPs (systematic investment plans) started in 2015 from the pocket money he saved in college. But not everyone is as optimistic as Palande. The January SIP data reveals that there has been a significant rise in cancellations.Over the past year, the Nifty is at or up only 3%. From its peak, the benchmark index has corrected 13%. And many of its multibagger constituents like Tata Motors and Trent are down 26% and 42%, respectively. In the small-cap and mid-cap space, stock-specific corrections are even sharper. Thus, new investors who started SIPs less than a year ago are getting jittery. They have been lured by annual returns of around 25% for the past three years and their conviction to remain invested will be tested in the coming months.Even after the recent correction, the Nifty Midcap 150 Index still trades at a PE (price-to-earnings) multiple of 35x (down from 40x two months ago), the small-cap index is at 26x, while the large-cap or Nifty 50 trades at 20x. Around 65% of the top 500 stocks (by market capitalisation) continue to trade at a PEG (price-to-earnings growth) of over 1%. PEG ratio infers a relationship between the P/E ratio and the projected earnings growth rate over a specified period. A low PEG ratio is considered healthy.The Nifty CAPE (cyclically adjusted price-to-earnings ratio) ratio is at 34x, which is more expensive than S&P 500 trading at a CAPE ratio of 33x. Clearly, the Indian markets are expensive, and companies are not offering the high double-digit growth that the market promised three years ago. medium118441795“For the last few years, the India corporate growth story set the expectations that an earnings growth of 20% was the new normal. That expectation is unwinding as earnings slow down. So, there will be repricing, which is visible in the correction,” says Anurag Singh, founder and managing partner at Ansid Capital, who is a strong believer in value investing. He says SIPs started at the peak and largely in small- and mid-caps may yield suboptimal returns till 2030.The basic question new investors are asking is — if they are getting 7% risk-free returns from a savings account with a private bank, should they be investing with the Nifty, which is offering 3% as of now? Even if we go by the long-term average of 12% annual return, are investors ready to invest in equities for that extra 5% return?The detailsData from Ace Equity shows that the revenue growth of April-December FY23 was tremendous compared to the same period of FY22. The average topline growth of the top 400 companies of the Nifty 500 was 29% and the median growth rate was about 22%. But in the first nine months of FY24, average revenue growth slipped to 14% year-on-year, while the median growth fell to 10.6%. The latest nine-month period continues to be equally bad year-on-year, if not slightly worse. In the nine months of FY24, 58% of the same 400 companies reported below-average revenue growth. This number has risen to 64% of companies in the first nine months of FY25.So, Indian equities still look expensive. But while the Indian corporate earnings growth story is dented, the dollar, on the other hand, is strengthening and the US markets are touching an all-time high. With the largest economy in the world giving better returns to global investors than the fastest one, their chances of returning to India are slim. medium118441812But here is the thing. For 2024, the yearly returns correlation of the Nifty 50 to the S&P 500 was at a staggering 85%. But ever since Donald Trump assumed power in the US, this number has fallen to 30%. The correlation has fallen due to multiple reasons, but the primary one is that the fundamentals of Indian corporates are not in place and a strong dollar and robust US economy, especially after Trump’s win, is attracting foreign investors to the US market. But the US market is overvalued. The S&P 500 trades at a price-to-book value of 5x. But then so is the Nifty.Given these factors at home and overseas, the best-case scenario for the Nifty 50 is to recover to its earlier 52-week high of 26,000 points by December, according to leading foreign brokerages. This means, 2025 may not be a great year for equity returns as the market sentiment turns risk off. But the likes of Palande are shaken, not stirred.Taking risksIn 2017, Palande left his job with a private bank and chose to follow his passion for tennis. He started tennis classes in Mumbai in February 2018 with a single centre; today he has eight across the city with almost 35% share of the south Mumbai market, he claims. He recalls that his business was barely two years old when the pandemic hit — suddenly the streets went quiet, and the tennis courts became empty.With the extra time on hand and the marketing pull of stock-trading apps, Palande took a plunge into stock picking. “When I started investing in the markets, I invested what I could afford to lose,” he says. As soon as cities unlocked, Palande’s tennis courts started humming with business from people who were working from home. With time on their hands, many chose to play tennis and Palande played the markets with his rising disposable income.“By 2022, we were operational 18 hours a day at the tennis coaching centres,” he says, adding that the business is still doing well but nowhere close to the demand back then. Interestingly, this pattern is similar to the revenue growth of the top 400 companies of the Nifty 500 mentioned above. It is also similar to the pattern observed in holiday rental yields of properties in Goa.“Consumption slowdown is not new. These stocks have underperformed in the last two years, and the government capex/PLI (production-linked incentive) spending-led stocks in defence, PSUs, infrastructure, power was driving the market,” says Samit Vartak, founder and chief investment officer of SageOne Capital. Vartak adds that the current correction is a cyclical event that happens every 2-3 years.Among those investors who benefited from the run-up in defence and green energy stocks is business consultant and market enthusiast Dhaval Parekh.Unlike Palande, Parekh is not a first-generation investor. He has booked his profits in some of his investments during the bull run but is holding onto a few of his small-cap bets. Parekh had bought shares of the Zim Laboratories at an average price of ₹110-120. “Zim Labs has corrected some 20% but I want to continue to hold the stock since I believe it has long-term potential,” he says, adding he is neither panicked nor perturbed by the recent crash.He currently manages a portfolio of around ₹40 lakh and says he is waiting for some of his old multibaggers to correct so that he can buy them at a low and ride back to the top with them. Palande too sees the correction as an opportunity to buy. He knows equity returns can be lumpy. medium nocaptionhttp://youtu.be/NfQmBI5dJMU?si=ZY4BOCWXgrES5L8bThe outlook“In the last decade, between 2011 and 2020, if you had invested ₹100, you would have got about ₹230 at the end of 10 years. Whereas in 1980, if you had invested ₹100, you would have made ₹700 in 10 years,” says Devina Mehra, chairperson and managing director of asset management firm First Global and author of Money, Myths and Mantras.Since July 2024, Mehra has been vocal on social media platforms about the consumption slowdown and weak earnings in the small- and mid-cap space. But the market touched an all-time high in September despite signs of a slowdown.“Ultimately, the economy and the market are two different things. There’s no better example than China, which made its market high in 2007 and since then the GDP (gross domestic product) has gone up more than six or seven times, but equity markets have yet to cross the 2007 levels,” she says.As for the likes of Palande and Parekh, shopping for value bets during a market correction is a risky move and the wait for returns could be long. Either the narrative around weak domestic demand needs to improve or the US market returns need to turn unattractive for investors.Nevertheless, investors who have experienced the giddying market highs during the post-pandemic boom are down but not out. What most people don’t seem to understand is that market falls are a feature and not a bug.“I want to be invested for the next 30 years,” says the tennis coach. But does that guarantee you will make an annual return of 12% in the future? Only time will tell.