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Mr Market Gets Jittery on Indo-Pak Tension
Fri, 30 Sep Pre-Open

Mr Market was nervous yesterday. News of geo-political tensions between Indian and Pakistan made it so. Reports state that India conducted surgical strikes at some terror bases in Pakistan. The equity benchmark <>Sensex tanked over 500 points intraday on the news. The kneejerk was also seen in broader markets. As per news reports, by 1 p.m. yesterday, none of the BSE Midcap index's 84 stocks was trading in the green. Further, among the 761 BSE Small cap stocks, only 27 were trading higher.

The fear among market participants was also palpable. This was seen as the Volatility Index (VIX), a gauge for trader's expectations of near-term risks in the market, based on Nifty options values, spiked some 29%. This was a three-month high.

Volatility, and short-term fear ruled. But this is not something new. Indian stock markets have seen many such instances. And there may also be similar instances in the future. This begs the question: How can one make the most of these situations?

What is important to understand is markets are prone to volatility in the short term. However, one can beat this volatility by taking a long term view and playing by the fundamentals.

The intelligent investor understands that volatility is not his enemy, but his response to volatility is. He ignores the ups and down in markets and simply focuses on good companies.

So here's the crux: When you invest, don't obsess too much over factors that drive stock prices in the short term.

At the same time, the short-term movements in the markets could be a positive if one knows how to channel his greed and fear right. Whenever markets suffer panic attacks and fear-driven sell-offs, long-term value investors will have the rare opportunity to pick solid stocks at a discount.

Speaking of long-term value investing, our research in March revealed that, in aggregate, the profit margins of Sensex companies were trading at ten-year lows. So, if profit margins were to revert to their long-term averages, the Sensex may likely hit 40,000 three to four years down the line.

To know more, we recommend you to download our premium report, Sensex 40,000: 4 Stocks to Profit from the Coming Stock Market Wave.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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