MAKING SENSE OF THE INFORMATION PANDEMIC

MAKING SENSE ON THE MARKET VOLATILITY POST COVID 19 AND ITS IMPACT ON YOUR INVESTMENT PORTFOLIO


As the country steps into Lock down 2.0, we wish you and your family safety.

While most of us stay at home amidst the lockdown and consume information like never before, making sense of the future of the Indian economy and its impact on your investments is a valid concern.

Though no one can predict the future, what is more relevant is to be aware of the situation, analyze the probable impact and devise a strategy to ride out these times.


Given the volatility and the uncertainty in the market, we suggest the following general guidelines:

1.     For equity investments, deploy only the surpluses and what you may not need for the next 3 years. Invest in large caps as they would be the first to recover when the market goes up. These funds should be deployed in a staggered and phased manner through SIP and STP. Do not break FD to invest in Equity. 
2.     For Debt investments, Bank FD’s, PPF, EPF, AAA rated Company deposits and Debt mutual funds are good.  In Debt funds too, it is advisable to invest in overnight and liquid funds or ones which have a AAA rated Portfolio.
3.     The deployment of fresh funds could be over a horizon of 8-15 months. It may be worthwhile to distribute your investible funds into two parts; 50% invest now in a phased manner and the rest 50% may be deployed when some good news regarding COVID-19 comes.
4.     Do not stop your running SIP/STP as that would defeat the purpose of investment.
5.     Keep liquidity, given the uncertainty on the lock down. This should be 6 months of your monthly expenses and parked into overnight funds or Bank Sweep in accounts.
6.     Hold on to your predetermined asset allocation.

The market outlook:

As the COVID-19 crisis deepens, it is not uncommon to hear all kinds of news, mostly worst about our economy and world economy in general. There are concerns all around if this is the worst depression that we have ever seen. Well this is how the pessimist amongst us felt post 2008 crisis when the sensex fell almost 13000 points from a high of 21200 to 7700(slump of 64% in just 10 months) but then reclaimed the same levels by 2010!  Some people would put across this point that this time “its Different”!  and we may not recover very soon.  Well each time ‘its Different” and the important point is; we would recover(as we have after every downfall)…all it will take is time!

Also this time around, our status in comparison to the world economy is better. The govt too has taken sound measures that would help sail through this crisis and propel the economy towards a faster recovery.

‘The Half glass full’ that is good news:

1.     The fiscal Deficit has been increased which would result in higher liquidity in the system. This is important step by the Govt to kick start the economy.
2.     RBI has taken other measures like cutting the CRR ratio, lower interest rates and loan holiday. All these measure would help maintain liquidity and give a breather.
3.     RBI is sitting over cash reserves of over 6 lakh crores
4.     Savings rates are down to 10% from an earlier 30% and consumption is up. Our domestic consumption in itself would drive the economy.
5.     The interest rates in other economies are near 0%. This means the FII’s looking for better rates would channel their funds into ours.
6.     We may become a preferred destination for outsourcing in the service/manufacture and other sectors, given the unpopularity of China in the coming months.

Challenges:
1.     The pain would continue for some more time and we may see some more volatile movements in the coming months:
Can be seen as buying opportunities for some and for others it would be a time to just ‘hold out”.
2.     There is a concern that some companies may go bottoms up and declare themselves insolvent: 
It is important to analyze the portfolio before investing. Staying away from riskier debt is advisable.
3.     Greed and Fear would be the driving force in investment decisions:
holding on to a predetermined asset allocation without panic and staggering your new purchases is the way to go.
       4.   The extension in the lock down would make the economic recovery that much more difficult and                         delayed
             There is a plan to open the lock down in phases for essential services and as already announced by                the Prime minister, the farmers would be extended all help and the supply chains wont be disrupted.                  So one can only hope for the best.

In these times of information overload, it is difficult to sift the information that is useful from one that only creates panic.
A lot of things would have changed by the time this lock down is lifted. Meanwhile, there is a silver lining in this lock down that has given us a chance to spend our time in things and with people we hold dear.

That is lots to cheer about!

Stay home! Stay safe!

anupama Bhargava
CFP

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