The last week has caused a significant reset in our investing. We are once again worried about how global factors will come to hurt. Banking, which is the bed rock of every economy looks like the most rattled space in the west. When smaller banks look weak, they create a systematic scare which needs to be urgently addressed. What we are seeing in the US is a rush to douse the fire that can damage far more than we can imagine.
Will the damage be contained? The simple answer is, there is no choice but to contain the damage and restore confidence in the banking system amongst depositors and shareholders. While this will happen over a period of time, it is unlikely that this confidence will manifest as strong investment appetite in banks for a long time. This is not great news for the Indian banks too. While they are not directly impacted, FIIs could take a cautious view on Indian Banks. Existing ownership of FIIs in private banks is quite high and any reduction will have multiple ramifications.
The index may show prolonged weakness and investment flows may reverse even among retail investors. The confidence in equity investing may be tested much more than we imagine. During such a phase investors must be measured, relaxed and consistent in their investment responses. Knowing what not to invest in, showing clarity in how to invest, acting in response to attractive opportunities and keeping some powder dry for every market event will be the right thing to do.
Investor must show far more patience now than they have in recent years. The rewards which equity will produce are clearly a function of your preparedness and patience in investing.