The Indian market did not participate in the AI and semiconductor stock boom. However, if global markets experience a sharp fall due to significant corrections in AI and semiconductor stocks, our market may well participate in the downside.
This may sound odd given that we are likely to be punished on both sides. But, that is how the irrational side of the market works when liquidity drives behaviour. When FIIs pulled money out of India to bet on other Asian markets which gave them the opportunity to invest in semiconductor stocks, our indices were under pressure for months.
Now, when those markets correct sharply in a few days, we are still being sold to cover up for the losses. This is neither new nor odd. When FIIs enter exit mode in a market, they simply repeat the same behaviour under different circumstances.
So how should domestic investors respond to this persistent selling in Indian equities? Past cycles offer us a very simple lesson. Show conviction when there is selling fury all around.
That means remaining anchored to our investment beliefs, using valuations as the decision driver and play contrarian when selling pressure is very high. Where we choose to invest matters. Given the limited liquidity we have, our funds should go exactly to the right market segments.
This is now turning into a very stock specific market. Investors must pick their themes right, buy their stocks at the right valuations and invest strictly by their rules. A recovery may take longer and investors must give their portfolios enough time to deliver. Persistency and patience shown now will not go unrewarded.
