Investors are advised to keep patience, invest selectively and wait for equity markets revival
The global economic slowdown is already evident in several countries and now with the World Health Organisation (WHO) declaring Coronavirus (covid-19) a pandemic, the scare is showing its effect – on business sentiments, disruptions in global demand-supply chain, across industry spectrum and assets class like gold, stocks, currencies and other assets.
The IMF is due to release its revised World Economic Outlook report shortly and is doubtful if the projected growth at 3.3% will surpass last years’ 2.9% or still fall below it. This is because of the prevailing uncertainty and difficulty in predicting as to how long the coronavirus impact would continue. Demand-supply chains have been disrupted and are bound to reflect in corporate earnings around the globe in the next few quarters. Travel restrictions in USA, India and near lockdown in other countries will hamper flow of tourists – both leisure and business, leading to cancellation of events, affecting hospital sector and what not.
The financial markets being a reflection of the state of the domestic or global economy have reacted and slumped significantly on expectations of a tough period ahead. The volatility has increased and markets are on a roller-coaster journey for over a month. The current fall in equity markets and the prevailing business confidence are being compared with the 2008 financial crisis, raising fears of global recession.
Global stock markets including the Indian markets have crashed more than once. Dow Jones, FTSE 100, Asian markets and Nifty just had their worst day on Friday the 13th, plunging between 7.5% – 12% from their peaks. Panic gripped the world financial markets and even safe-haven assets such as gold and bonds were ditched to cover losses in the wipeout.
Indian markets were forced to shut down amid extreme mayhem and on hitting the circuit filter. Markets after reopening displayed a highly spirited recovery. The intraday swing in indices witnessed was truly unnerving but provided a tremendous buying opportunity for those under allocated towards equities. The domestic equity indices are likely to follow its global peers and stay under pressure in the near-term atleast. Nevertheless, fears of systemic risks prevail and further volatility cannot be ruled out.
With so much of turmoil all around, where does it leave an investor? What should he do?
Given the pandemonium in the financial markets on the whole, for an equity investor, who has suffered a loss on his principal investment –either in equities or in equity schemes of mutual funds, the best option will be to keep patience; not panic and sell/liquidate his holdings; and if sitting on a surplus cash – he should start buying in moderate quantities from the current levels. Someone who is looking to invest in mutual fund schemes can start on a Systematic Investment Plan (SIP) of an equity or a balanced fund. This will ensure that you are not committing your entire investible surplus as one go. And it will mitigate your risks in current times of extreme volatility.
Beyond the coronavirus scare which is likely to subside sooner or later, we are all aware that India is in the midst of a macro-economic slowdown and for the tide to turn, the government is taking steps to kick start the economy. And boost demand for goods and services. However, industry’s revival will take time and is linked to demand pick-up. The GDP growth is estimated in the range of 4.5-5% for 2020. As the stock market discounts the future, it is likely gather momentum, once there are definite signs of a turnaround. Every positive move will be welcome. Investors looking to create long-term wealth through equity should ideally allocate funds to well diversified blue-chips with a proven record of creating wealth. They should identify value in sectoral players and can invest in select FMCGs, private banks, MNC pharma and IT.
Having said, I did some workout on how markets have regained the loss in each previous sell-offs. And the answer is available in the data so produced hereunder. Please read them.
Year 1992 – Sensex was down by 54% in a year and up by 127% in next 1.5 yrs.
Year 1996 – 40% down in 4 years and 115% in next year
Year 2000 – 56% down in 1.5 years and 138% up next 2.5 years.
Year 2008 – 61% down in 1 year and 157% up in next 1.5 years
Year 2010 – 28% down in 1 year and 96% up in next 3 years
Year 2013- 15% down in 4 months and 72% up in the next 1.5 years
Year 2015- 25% down in 1 year and 62% up in the next 2 years
Year 2018- Nearly 15% down in 1 month and 21% up in the next 8 months
Year 2019- 10% down in 4 months and 17% up in next 4 months
March 14 2020- Currently 25% down in last 2.5 months. Will it reagin 20% in 3 months and 50% plus in a Year’s time ? Let the Time decide the rise and gains!
As can be read from above,
in short to medium term of 4-6 months, *recovery of 20% after the fall and over 18-24 months they have recovered 100% plus in most cases.*
If this data speaks for itself, the situation will be no different in coming months after this fall
The views in the article is personally of the author ( Alpa Shah ) not attributing to any one.
