The central banks worldwide have raised interest rates to their highest level to control inflation. Presently, the interest rate in the US ranges from 5% to 5.25%, 4% in the European Union, and 5% in the UK. The Reserve Bank of India (RBI) has increased the interest rate to 6.5%.
Although inflation is decreasing, it might remain elevated for a considerable duration before reaching the target set by the Central Banks. In the US, inflation stands at 3%, 7.10% in the European Union, 8.7% in the UK, and 4.25% in India.
The success of ChatGPT has sparked a surge of interest in Artificial Intelligence (AI), which is being hailed as the next major technological advancement. The US market is feeding on this frenzy, leading to a 17.71% year-to-date increase in the S&P 500.
Certain investors believe that the US market is overpriced, given its price-to-earnings (P/E) ratio of 19, and are waiting for the S&P 500 to retrace back to its previous low of approximately 3800. However, this retracement may not occur.
The Indian economy finds itself in an enviable position due to global interest in the ‘China plus one’ strategy for supply chain diversification, a lesser impact from the Russia-Ukraine war, and manageable inflation. The Nifty 50 has reached an all-time high of 19,564 with a P/E ratio of around 24. Some investors are awaiting a market correction to the previous low of approximately 17,000. Would the market go back to the previous low is anybody’s guess?
Markets can remain irrational for longer periods than anticipated, and attempting to time the market to enter at a lower valuation is unwise, as it is nearly impossible to identify the absolute bottom.
So what should be the right investment strategy?
With the upcoming general election in India in 2024, the Indian government will make conscious efforts to create a positive sentiment among its citizens. It is expected that the Indian economy and the market will stay the course in the near future. Hence, it is important to stay fully invested in the market for long-term gain. As it is difficult to identify the market bottoms and time the investment, the easiest thing to do is to invest periodically. It takes away sentimental bias and ensures the deployment of surplus money in a timely fashion.
The writer is a SEBI Registered Adviser and Founder of FinMyn (https://finmyn.com). He provides Fee-Only Financial Planning and Investment Advisory services.
He has advised many clients in India, the US, the Middle East, South East Asia, Europe, and Australia.
To know more about him, click on https://finmyn.com/about/.