2022 will be volatile compared to 2021, downturn may provide opportunity to buy great companies: Viram Shah, Vested Finance

The stock market rally that began around April 2020 reached the pinnacle in November 2021 and since then the indices are down by almost 20 per cent, with some blue-chip US stocks down by over 30 per cent. While long term investors of quality companies could be making use of this opportunity, some new investors may get perturbed looking at their portfolio. What has changed is the economic environment with rising inflation, interest rates and supply crunch taking the front seat.

In an exclusive interview with Financial Express Online, Viram Shah, Co-Founder & CEO, Vested Finance shares his views on how the US stock market is expected to perform in 2022 and how every downturn provides opportunities to investors to buy great companies at cheaper prices.

Nasdaq has entered the bear market after falling more than 20 percent from its highs. Even S&P 500 is at a touching distance to it. How should existing and new investors approach the markets now?

Market movements are cyclical in nature, and investors, both existing and new, should avoid making any knee-jerk reactions and continue investing from a long-term perspective. Markets are expected to remain volatile until the interest and inflation rate expectation peaks.

If we talk about recession then we can’t say with any certainty that we have entered a phase of recession. To make any concrete comment on recession, we first need to witness GDP decline for two consecutive quarters.

The recent sell-off may be harder to stomach for investors as the maximum decline last year was about 5%. Investors are not used to large declines but they inevitably always happen.

Is the bull run in the US Stock market over? What kind of recovery can the investors expect from the current levels?

It is difficult to predict a bull/bear run under any circumstances. Stock market movements are closely knitted with the economy and the growth of the companies.

The immediate focus of the Fed is to get inflation under control and the Fed is very vocal about its stance. So, the entire stock market recovery is dependent on how the inflation situation plays out. At this stage, giving a timeline with certainty is going to be a difficult task.

Are there any frontline mega-cap US stocks that investors may consider buying if their valuations have fallen and the future prospect looks bright?

While mega-cap stocks are experiencing higher than average volatility recently, lower earnings growth and tightening Fed rates could point to more pain in the short term. However, two factors still work in favor of mega-cap stocks.

First, one needs to understand that consumption in the USA has not slowed down. So these large companies will continue to attract customers even though there is a general slowdown across industries So mega-cap companies would continue to generate steady cash flows. Second, with rising inflation and uncertainty, many investors would invest in mega-cap stocks to minimize their overall portfolio risk.

Mega-cap stocks are in a better position to withstand market fluctuations because they have sufficient capital and steady cash flows. This could mean that some investors may find an opportunity in these stocks, especially if their valuations have fallen.

On our platform, we have seen increased buying for mega-caps like Meta Platforms, Apple, Microsoft, and Amazon.

Indian markets have not fallen as much as US markets. What could be the reason and what is 2022 going to be for both the markets?

We live in a world where nothing is decoupled and the same goes for the US and India’s economies and stock markets. In addition to that, it is extremely difficult for anyone to pinpoint a reason why one market has provided better returns compared to others.

In the past, we have seen Indian markets to be more volatile compared to US markets. So the idea over here is to not compare two markets on a day-to-day basis as it is unlikely that something major happens in the USA and India will remain isolated to that. Investors should use access to these two markets to diversify their portfolios.

Compared to 2021, how will 2022 be for stock market investors?

We would like to reiterate that in the current situation, investors need to stay calm and stick to investment basics. They need to understand that 2022 will be a volatile year, especially when compared to 2021. Market cycles are part of the investment journey, so we must accept this and make sure that we don’t make any hasty decisions. Every downturn provides opportunities to buy great companies at cheaper prices.

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