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Equity Markets in India

Equity markets this year saw a roller coaster ride driven by global tailwinds and rising favour for the India growth story. Amidst turbulence in the rest of the EM basket, India stood out as a favoured destination for global investors.

2022 - A Year of Volatility

Year 2022 like the previous 2 years can be the one where volatility will be a key part of the markets. Markets have seen a one-way rally since 2021 driven by several tailwinds in the economy, the progress of the vaccination and the return of corporate profit growth. While these factors continue to play out, select pockets of the market have run up above expectations. This excess is what is correcting. With strong retail and non-institutional participation, many of these companies are trading at 'frothy' valuations. This is getting corrected. The market is a great equalizer. Long term investors who understand this have stayed away from many of these names.

The market as a whole will take intermittent breaks from time to time to digest information before the rally continues. In normal market conditions where there is positive optimism and the economy is growing, markets tend to follow the longer term trajectory of economic growth. Along the way frequent corrections are often considered healthy and investors should use these opportunities to top up their existing investments. From the market peaks, we are down ~10% which is not unusual. A typical bear market scenario is where you see index levels drop ~20% and we are a long way away from that scenario.

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