Why investing needs your logic than emotions
Your investment decisions are influenced by 150 different emotions that you experience in your lifetime. To invest successfully, you must manage your emotions, according to Daniel Crosby’s seminal work, The Behavioral Investor, published in 2016.
Greed and fear are two powerful emotions that drive prices in financial markets. Most of the 150 emotions we experience culminate in greed or fear. Eventually, that makes you buy or sell any asset. You can set your emotions free only after making sense of the information that comes your way. While rationalising emotions is impossible, it is easier to derive them from statistics analytics that point in a particular direction.
By analysing the fundamentals of a business, a sector or an economy, you try to make rational decisions. However, on most occasions, managing emotions gets trickier than you think.
For a long time, the IT services sector has been a bellwether sector. When the Rupee tumbled in international markets, most investors sought refuge in IT sector shares as they exported services to the US and other developed markets. They earned valuable foreign exchange that stemmed the fall in the rupee value to some extent. Today, foreign exchange revenue through IT services exports has jumped multi-fold, the Rupee has lost ground over the past few months, and yet, IT services stocks are under pressure in the stock market.
The Nifty IT sector index has tumbled as IT services company share prices are witnessing sharp cuts. A surge in volatility in the US stocks represented the VIX index. IT sector stocks have an inverse relationship with the US stocks volatility index. There is also a visible pressure on revenue. In a recent release, ICRA, an Indian credit ratings agency, said that the revenue growth in the financial year 2025-26 is likely to remain muted. That is still no reason for such a sharp cut in share prices when headline numbers are in favour.
The answer is in the volatile, uncertain, complex and ambiguous VUCA world. It is not just because of the threat of tariffs on all imports that the US president is hitting the world. There is a disruption in changing business models. The International Monetary Fund (IMF) warned earlier in an India-related macro report that artificial intelligence and automation in IT services are increasingly reducing the demand for routine labour-handling tasks like customer service, transaction processing and technical support. It warned of a risk of reshoring to the US.
Most Indian and sizeable global IT services companies employ thousands of Indian workers to offer such services to global corporate customers. The offshoring model is at a significant risk. There are at least a trillion dollars that American corporations are sitting on their balance sheets. There is scope for discretionary technology-related spending. Indian IT services companies that adapt and offer solutions quickly could succeed eventually. However, a change is underway, and it will hit revenue growth in the short to medium term. You may want to listen to Indian IT services companies carefully during the March 2025 quarter financial results phase. They could still regain the status of being the bellwether sector. But the path ahead could be thorny.
What can you do
As a regular investor, you may want to ensure you can ride through these times with your investment. IT services companies in India have a track record of bouncing back the fastest among sectors in times of difficulty. Keeping a well-diversified portfolio is a good option when volatility rules. A lot of you invest through sectoral funds. You may want to diversify to a broader category of equity assets. Those with moderate risk appetite should switch to hybrid funds or multi-asset funds.