Time in the Market is More Important Than Timing the Market by Mr. Ashok Kanawala, Head - Distribution Alliances & Product Strategy, HDFC AMC Ltd
The Current Volatility: Slowdown in the Economy and Earnings
India’s economic growth has been under pressure in recent times. In quarter ending Sep’24, there was slowdown in GDP growth, with the economy growing at a slower pace than expected. Several factors contributed to this slowdown, weak global demand and domestic challenges such as slowdown in consumption, slowdown in capex, etc. Moreover, the corporate earnings of many companies have also been under pressure. As a result, the market has witnessed heightened volatility, which has left many investors on the edge.
Investor Behaviour During Volatile Periods
In addition to aforesaid, FII selling has contributed significantly to market volatility. During periods of volatility, human emotions tend to take over. Fear of loss, uncertainty about the future, and the desire to avoid short-term pain often drive investors to make hasty decisions. Some sell their investments in panic during such periods while some stop their SIPs. This pattern of behavior — loss aversion and trying to time the market — has been a major cause of underperformance for many retail investors in India. This is one of the reason due to which investor returns are typically lower than scheme returns.
The below table shows why one should ignore such noise and stay put for long term wealth creation.
Daily returns from January 1, 1990 to Dec 31, 2024.
Source: Source: Internal calculations based on data procured from www.bseindia.com
The above chart shows that if you had remained invested in stocks (as measured by the BSE Sensex Index) from January 1, 1990 to December 31, 2024, you would have earned compounded annual returns of 14.00%.
However, if you had tried to time the ups and downs of the market, you would have risked missing out on days that registered some of the bigger gains, and the CAGR would have dropped drastically: 10.80% if you missed 10 best days, 8.60% if you missed 20 best days, 6.70% if you missed 30 best days and 5.00% if you missed 40 best days during this period
Past performance may or may not be sustained in future and is not a guarantee of future returns.
India’s Long-Term Growth Story: Why "Time in the Market" Matters
Despite the short-term challenges, the long-term growth story of India remains intact. India is poised to become the third-largest economy in the world by 2030, supported by a young and growing population, increasing urbanization, a rising middle class, and a robust digital economy. The government has also undertaken structural reforms aimed at improving ease of doing business, boosting manufacturing, and attracting foreign investment.
To realize the full potential of India’s growth, investors need to focus on time in the market. By staying invested over the long term, even through periods of volatility, investors could benefit from the power of compounding and ride out short-term market fluctuations. The market will always experience ups and downs, but the key to wealth creation lies in staying committed to the long-term growth story of India.
To realize the full potential of India’s growth, investors need to focus on time in the market. By staying invested over the long term, even through periods of volatility, investors could benefit from the power of compounding and ride out short-term market fluctuations. The market will always experience ups and downs, but the key to wealth creation lies in staying committed to the long-term growth story of India.
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