Its official, India will observe an extended nationwide lockdown until the 3rd of May under utmost vigilance. There is hope of some respite in relaxations to the unaffected areas and businesses classified as ‘essential’ in the near future. The pandemic related volatility in the financial market has been playing havoc for over 3 months as we globally continue to tread unchartered territory.
Today, we are witnessing the world’s most catastrophic pandemic, a global economic crisis, the steepest decline in oil-prices and economies across the globe facing a massive disruption in demand and supply. The International Monetary Fund (IMF) had estimated India’s growth at 5.8% in January and has now further retrenched it to 1.9%. These are side-effects of our interdependence in a globally integrated world. Governments across borders are caught in this unique situation between falling markets and rising infections and are faced with a tough decision to make between favouring life or the economic situation. An inverse relation has emerged between health/safety and economic stability brought by the shutdown.
Should businesses be allowed to run at the risk of losing hundreds of thousands of lives to pull the economy back up? or should the economy continue to suffer while millions get displaced to save us from the horrors of the pandemic?
The dilemma is undeniably legitimate leading to the ultimate question of which way to go?
This is the same question investors are facing with the double whammy of an unstable market and an indefinite lockdown scenario. According to Nifty’s measurements the Indian equity markets have corrected by 29% YTD, and over 30% from the peak achieved on January 13, 2020. From an optimistic point of view economies will begin to recover once the pandemic has been controlled, but its true success will be seen in continued rescue measures rolled out by the Government to resuscitate the economy. There are assumptions that RBI will further infuse liquidity in the markets and facilitate government borrowings. Additionally, the 15-month extension of realization period of export proceeds and a 3-month moratorium on payment of term loan instalments are measures that are likely to bring some respite to our bleeding economy.
Quit or Stay?
It is evident that predicting the rise and fall of stocks can be impractical. A bear market comes with turmoil and brings with it the emotionally-driven choices of selling or buying. Investors should pay attention to ‘what’ you are investing in rather than focusing on when to invest. It is far simpler and safer to analyse and invest in businesses that have a future to deliver better results and do so in the long-run, rather than looking for menial returns quickly that could fail to be beneficial in future. Here is my piece of advice to investors:
- Avoid timing the market as there is no way here we can predict the bottom.
- We are facing a circumstance where we are unsure of how the economy will play out even in a post-pandemic situation. Hence, keep liquid cash reserves that cover your future expenses and debts. Investors with cash in-hand may carefully invest the surplus in a staggered manner all while keeping their risk capacity and long-term goals in mind.
- Equity investors in for long-term benefits should stay invested; the current volatility is unlikely to affect your investments. Topping up your SIP’s now could help you get the best of rupee cost averaging.
- The current market scenario is good for investments in equities, but investors must be wary of their risk appetite before plunging into any investments.
- Through a thorough risk profiling Pay heed to high-risk investments or businesses that are at risk of collapse or closure in the next 3 to 4 months in your debt portfolio.
- The current exposure to equity markets may be dicey and not the best option for short-term investments as of now unless one has an excellent risk appetite and surplus to invest in.
- Short-term investors will witness the market rally based on measures announced by RBI. For those investors who have higher allocation towards equity, these rallies pose a good opportunity to book your profits considering the markets could take a while before it bounces back to normal.
We are amidst the worst recession India may have ever witnessed; let us ensure we prudently secure our health as well as our wealth for a better tomorrow.