Markets are affected by almost everything but to succeed in investing, it is important to keep away from such noise, says Dhirendra Kumar
Are ups and downs in the stock markets dictated by foreign institutional investors (FIIs)?
- Prasanna Gururajan
Ups and downs in the stock market, on a day-to-day basis, are guided by almost everything in this world. So, it is impacted by foreign investors, domestic investors, political decisions, mess in the economy or even sometimes it is hurt by a virus that, too, in a very genuine way because the virus has caused an economic disruption, resulting in fear in the market. Further, the stock market tries to factor in everything in a rush. If somebody gets an inkling of something happening and the market realises it, then whatever happens in the next three years will be reflected by the market in the next 15 minutes. So, in that sense, the market is a very advanced reflector of many things that can happen very distantly in the future. But you have absolutely no control on that.
The only thing that you can control is to look for companies that will make more money over a period of time. Now, such choices do not largely get affected by everything. Having said that, such companies may be affected by Covid-19 and the related disruption, but people will start buying cars again, get their homes painted, etc. So, companies produce products and services which consumers will buy, that, too, in growing numbers in India. Now, there are inputs to these products and services, so the company's earnings get adjusted for inflation. So, when wages go up, the input costs rise, so do the prices and if the prices go up, companies make more money. This is the basic premise of investing in equity.
Further, once in a while some companies go wrong, they go out of favour or they become obsolete or less competitive, losing the plot in the marketplace. So, these are situations reflecting the kind of mortality that we see in companies. Therefore, be focused on such reasons rather than focusing on things like FIIs doing something, fluctuations in oil prices, etc.
There is plenty of noise in the marketplace which can affect it on a moment-to-moment basis. But to succeed in investing, it is important to keep away from such noise. I will suggest you keep looking for many columns written by me where I have joked about all such noise. In fact, right now, the kind of optimism that we see in the market itself is quite noisy. So, do not get abused or distracted by such commotion in the market, as it's not meant for investors, it's meant for traders or somebody else who is making a living out of such things.