DECODING THE IMPACT OF COVID-19 DRIVEN FREE FALLING MARKETS

DECODING THE IMPACT OF COVID-19 DRIVEN FREE FALLING MARKETS

The global economy has suffered a significant slowdown as it witnesses the like of something never seen before. As the world scuttles towards new measures to safeguard against COVID -19, there is a widespread downslide on the stock markets leaving global investors uncertain about the market situation. The global economy is projected to grow at 3.5% in 2019 and 3.6% in 2020, 0.2 and 0.1 percentage point below the last October projections.

In a scenario where sentiment is negative and uncertainty drives the market, it is common to see investors panicking and wanting to opt out of their equity investments. Investors typically look for investment options that will earn them the maximum return with the least amount of risk. However, this is a paradox! It would be worthwhile for investors to remember that high returns always come with high risk.

A Frequently asked question in this scenario is ‘could we have done something better to safeguard ourselves?’

Well that is not totally possible, but the following steps would have made the pain better:

1.   Discipline: -       The biggest challenge for an investor in a volatile market is to know the correct time of entry and exit. A disciplined investor does not ‘time the market, rather he gives time to his investment.

2.  Staggered Approach: - A staggered rollout reduces risk, allowing you to test change before you move onto full implementation.

3.  Diversify: -   Main advantage of diversification is minimizing risk of loss, preserving capital and generating good returns. It’s a good idea to put your eggs into different baskets and diversify across investment instruments and tenures.

4.  Monitor regularly and evaluate from Time to Time: -    Regular monitoring helps you stay on track and take corrective measures in time.

What can one do in the current scenario when the market is on a downward fall?

First thing is to remember is that though the markets have gone down and your investments are showing losses … these are only notional! Do not sell in panic and convert the notional losses into actual ones. Having said that, the question is what should one do?

1.  Have patience... All bad things do come to an end and so will this. The market always rewards the patient ones!

2.  Continue your SIP … This inculcates discipline in savings, averaging, etc .

3.  If you do have some money to invest… park it in debt especially liquid funds and push some in equity on staggered basis through STP.

4.  This is also a time to buy some good blue chip stocks.  However do so only if you have the requisite risk appetite.

5.   For the risk averse, park your funds in FD of banks … stagger across banks and do it for short periods.

On a closing note whichever way the market turns in near term, one thing can surely be assumed that the markets always bounce back… “All it takes is time”

Rishabh Singh

Curated by Anupama Bhargava

Beekay Associates