However, there is nothing to worry about for prudent investors who make a long-term plan for investment opportunities. Embark with us on a journey to future proof your portfolio against uncertainties, and don’t fail to profit from the growing industries.
Understanding market volatility: Causes and implications
Rising interest rates: The initiatives of central banks to deal with inflation have resulted in recent interest rate hikes that have shocked international financial markets. In an attempt to reduce inflationary pressures, these rises in interest rates resulted in increased borrowing costs and weakened investor confidence.
Due to increased volatility in different asset classes, sustainable economic growth has become a questionable issue.
Geopolitical tensions: Geopolitical tensions are another big concern when it comes to global financial markets. Whether it is the Russian-Ukrainian conflict or Middle East instability, the trade disputes and territorial disputes have caused disruption in global supply chain management and unstable financial markets.
India is one of the largest oil importers and is therefore greatly affected by the rise in oil prices due to tensions in the Middle East and disruptions to oil supply routes.
As a result, investors worry about their portfolios due to market volatility, currency fluctuations, sector-specific fluctuations, and much more. The main global events are causing a weakening of investor confidence.
Upcoming selections: Upcoming elections in several significant jurisdictions, including the United States and India, have further increased the uncertainty in global financial markets. Elections often result in changes to regulations and policies that can affect several economic sectors.
For example, the recent election victory of the ruling BJP party in three of the four states in India sent markets into a state of excitement. This victory benefited industries that align with the BJP’s agenda, such as financial services and infrastructure mainly as investors expect stability and trade reforms to continue.
The majority opinion is that the government’s excellent record increases the possibility that it will win yet another term, which has improved investor confidence and market sentiment.
However, market volatility may increase if there is a possibility of political chaos as investors may need to modify their plans in light of upcoming new laws and regulations.
Future proof your portfolio against market volatility
Seeing these market fluctuations, smart investors will try to make a portfolio that protects them from uncertainties causing losses. It becomes crucial to know and understand the risk capacity and risk willingness to implement the risk management techniques for a safe portfolio.
For good returns and a future portfolio, one should invest in a diversified asset class that properly maintains a balance between risk and return.
Identifying long-term investment opportunities
The short-term fluctuations of the market can cause concern to the investors but a long-term plan for diversified investment can help withstand the turbulent market. The long-term investment opportunities in different growth industries provide a safer direction in times of market volatility.
Healthcare sector
As a result of rising healthcare costs, technological developments and demographic changes, the healthcare industry has become a focus for investment. The COVID-19 pandemic helped the pharmaceutical industry thrive initially, but rising costs of raw materials have caused challenges in more recent years.
Despite this, pharmaceutical corporations are shifting their investments, especially in oncology and dermatology, as governments also prioritize research and development and health infrastructure.
Therefore, investors focus on pharmaceutical companies creating innovative medicines, biotech companies developing therapy using genes and digital health startups improving healthcare.
Infrastructure sector
The new budget launched by the government allocates funds for infrastructure facilities such as transportation, telecommunications, water, and energy. The expenditure on infrastructure will be doubled to Rs. 143 lakh crores between the years 2024-2030.
Also, the goal of Make-in-India requires a strong infrastructural foundation that would lead to economic development and prosperity. India has already built 74 airports in the first 67 years of independence and the figure has doubled in the last decade. This reflects the country’s infrastructural expansion at a rapid pace.
Government support and investments made in infrastructure companies and areas such as new bridges, roads, expressways and railway infrastructure will result in an updated infrastructure framework and ultimately benefit the investors holding shares of those companies. We also support this trend to increase investors’ returns and hold shares in companies like J Kumar Infrastructure Limited, Titagarh Wagons and Orient Cement.
Technology sector
Innovative technologies are transforming industries and driving economic growth, which is why the technology industry remains a hub for investment. In particular, potential areas to invest in include cyber security, cloud computing, artificial intelligence and 5G infrastructure.
With an aim to increase future wireless technology, the government of India aims to expand 5G networks across the country and make India a fully digital ecosystem. This would include a total investment of certain lakhs during the year 2024 to 2027 in various building blocks of 5G.
Therefore, tech companies have the opportunity to gain market share and generate large profits.
Manufacturing sector
The manufacturing sector has a contribution of nearly 15-16% to the gross domestic product (GDP) of India. To strengthen the manufacturing sector, the government is taking initiatives for the development of technologies such as robotics, automation and chemical-based manufacturing.
Corporations involved in automotive solutions, aerospace, electronic products, etc. will notice a remarkable increase in income, and therefore it is advantageous to invest in such companies.
Defense sector
Governments have raised defense spending in response to rising geopolitical tensions and changing security concerns, which have fueled the rise of the defense industry. Defense-related suppliers and technology companies can benefit from investments in advanced weapons systems, cyber security and military modernization programs.
As the government supports national security, the defense sector can be one of the best options for investors willing to invest with an objective of capital appreciation.
In conclusion, in the midst of market volatility and uncertainty, strategic identification and investment in key industries offers a way to ensure high returns. By diversifying assets and exercising due diligence, investors can navigate the complexities of the market, positioning themselves for long-term success.
Divam Sharma, Founder and Fund at Green Portfolio
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Published: 16 Feb 2024, 13:39 IST