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  • Market Strategy: World Cup football, Indian stock market and life

    Publish date: 5th July, 2018

    Football world champions have caught a deadly bug called first-round exit-itis. The virus isn’t recent either. It flew under the radar, yet in front of our very eyes — for five long World Cups. But now that we have detected it, we have figured out its evil ways. We found that its modus operandi was pretty guerrilla—it brought down mighty defending champions to its knees, blew holes in every pundit’s prediction and held the fans’ expectations to ransom. It made sure the downfall was spectacular by taking pains to build a myth for people to start believing in it before pulling the rug from underneath your feet. Classic ambush.

    The inglorious exit of defending champions

    So, the Sturm and Drang generated in Germany following the national team’s premature exit shouldn’t really exist. The reason is simple: if you win the World Cup, be prepared for an inglorious first-round exit in the next edition. Ask France, Italy and Spain. Brazil were the only ones who dodged the itis, but heck, this is Brazil we are talking about. They do what they want to. And one thing they don’t do is leave the party early.

    Champions can stage a come-back…

    But everything said and done, the upside is that the virus is curable. The lost powers can be re-found, the footballing prowess can be renewed and the strut-on-the-field can make a resounding comeback. All it needs is a national inquest, bouncebackability and a faith in talent. Truth be told, class is permanent! It’s a truism that has held France in good stead, especially when they caught the humiliating itis. The continuous purveyor of talent in their country has meant that they have been successful in infusing their national teams with new blood.

    …it just takes some time

    It’s true for Spain as well, funny as it sounds in hindsight. They may not have scaled their 2010 peak, but they have players for the future. A team comprising Isco, Thiago Alcantara and Marco Asensio cannot be laughed off. Also, these churns take time to develop. Remember, France got 16 years to bounce back from their 2002 debacle. We need to give Spain and Italy a few more years too. They are football powerhouses and the current dip in form remains but temporary.

    If you look at it, the swings in fortunes are very similar to the Indian stock market.

    Of bulls, bears and viruses

    Just like the old order is eventually reset in the footballing world, so is the case with the big-hitters in the stock market. If you rewind back to the 1997-99 period, you’d remember how Infosys, Cipla, NIIT and Reliance Petrochemicals were the engine behind the stock market surge. Similarly, Reliance Industries Limited (RIL) spurred the exchanges to new-highs in the sunny days of June 2016-June 2018.

    Leaders of a bull market usually struggle in the post-bull market stage

    But if you recall, these high-achievers did witness a dip shortly thereafter from their exalted standards. While companies like Infosys and Cipla’s market value shrunk around 35% in the next three years, RIL slumped by 17% post the 2018 peak. In fact, Reliance struggled between 2008 and 2016, only to bounce back in the last year-and-a-half. In the latest boom between June 2016-18, Reliance played a big role in helping the exchanges reach record highs.

    Time and timing

    This shows that while the timing of investment is important, it is not wise to write off the big players. They can bounce back. The adage of form being temporary holds true in the stock market too. Therefore, the history of World Cup football points us to the fact that pedigree, more often than not, overcome boom-and-bust cycles to deliver strong performances. Good stocks may have weak performances for some time, but their ability to bounce back remains intact. In short, it is better to keep hold of the ‘good’, ‘legacy’ stocks due to their superior quality and strong business models.

    Football, stock market and life

    Our lives are not immune to peaks and troughs either. Frank Sinatra summed up our life swings better than anyone when he penned his thoughts in the famous song ‘That’s life’:

    You're riding high in April

    Shot down in May

    But I know I'm gonna change that tune

    When I'm back on top, back on top in June

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