Investing In Current Scenario
“COVID-19 “virus has changed all aspects of life. It has not only
developed medical emergency worldwide but due to the widespread nature of the
virus, it has affected many developed and developing economies.
World economies will see the steepest fall in employment, industrial
activity, and service industry activity. This phenomenon already started in
greater economies like the USA, UK, Germany, Italy & India. China is an
exception, till the time we don’t know the reality. We are in lockdown since
25th March 2020 and it will continue up till 3rd May 2020. All
economic activity has been paused due to this and will remain in pressure till
next quarter. We have to accept this fact that human life is more important than
economic activity. The majority government’s
expenditure will be focused on healthcare and in saving human life. Stimulus
packages have been announced in past months and will be more in the coming
months but it will take time to recover, as an economy and we may lose half of
the year in just fighting with COVID-19. Major world economies will see some
recovery in economic activity after October 2020 or maybe later. 2021 may be
recovery year but the wound is so deep that it will take time to heal. And all
this is just an optimistic scenario, if any of the nations discover the
medicine or vaccine for COVID-19, If not then the second wave, the third wave
will keep all activity on the economic front, subdued.
We are in the worst phase of economic activity. Earlier “2007-2008” was the
year of a financial crisis because of the subprime mortgage crisis but COVID-19
is bigger or worst than that. The year 2020 has become a year for a health
emergency, leading to the financial crisis because of a lack of economic
activity and employment generation. We have to accept this fact that many
current economists have not seen such a phase of the economy and because of the
global market, it is not limited to one or two countries. The drop in World GDP
will be very painful for each country. Lesser demand, lesser circulation of
money, lesser investing will lead to shutdowns of businesses or stress in
businesses. Any business, which will be able to survive will outshine once
demand comes back but visualizing any recovery, will be an overrated statement
as of now.
World indices have seen a sharp dip, in March and higher volatility is
continuing in April month and maybe in the coming quarter as well. Dow Jones
has fallen approx 38.40%, NASDAQ has fallen 33%, BSE Sensex has fallen 39.35%
& Nifty has fallen 39.57%. FIIs have pulled out Rs, 57,000Cr & Rs
11,143Cr from Indian equity Market since March & Feb 2020 respectively. In
April, to date, FIIs have pulled out Rs 1000Cr from Indian Equity Market. And
FIIs are not only pulling out money from Equity they are pulling out from Debt
Segment as well wherein they pulled out Rs. 57,275 Cr & Rs 7999 Cr in the month
of March & April 2020 respectively. DIIs have become net buyers and Thanks
to incremental SIP investment, the First time in history retailer through the MF
route, is doing bottom fishing in the market.
But looking at the current scenario,
does it make sense to invest?
No doubt every fall in the market, generates an opportunity for better
ROI. But there is a hidden risk associated with this. This time fall was
sharper and faster and any bottom fishing on lower levels leads to burning
money in investments. But does anyone know the bottom, the answer is “NO
“. We have to analyze the current
scenario with a different perspective because the situation is different. The
fall was sharper so recovery may be sharp as well and if you are looking for
bottoming opportunity in the market, then trust us, you will not be able to
enter the market on the bottom as you will be looking for new bottoms. Timing
the market is a disaster technique and no one has perfected into that.
Here, we are giving you 7 keys which will help you in making disaster-free the portfolio which will lead to higher ROIs once pandemic gets over or controlled:
Emergency Funds: This financial crisis is different
from other crises. No One knows, how long it may continue? We have to accept
this fact that, investment is not a priority. Family expenses and health
expenses are more important in the current scenario. Keep 6-9 month Family
expense funds ideal in liquid funds or short term FDs (Not beyond 30 days).
Apart from this, keep 3 months' family expense funds as health exigency funds
separately in short term funds wherein there is no lock-in but better ROI than
Liquid funds. One has to create, one full year income as a separate fund for an
emergency fund in the current situation.
Risk & Reward: Market is down and most of the funds
and stocks are looking very cheap, so does that mean, buy anything on any price
“NO “. Every individual has a different risk appetite and also has different
ROI expectations. NO two individuals can be the same. Availability of funds, the
income also decides risk appetite in the current scenario. How much risk one
can take, where to put a stop loss, where to book profits, how long the fund
has to be carried, all these questions can be answered & needs to be
assessed before investing.
Time horizon: Each individual will be having a different
idea for the investment period. One may invest for 2-3 year and one may be
planning for retirement corpus. Idea and purpose have to pre-define with a time
horizon for investment. Short term investment in the current scenario may be a disaster.
Product: In equity also different vehicles of
investments are available. There is an option of Direct Equity, PMSs, Equity
Funds, and Index funds. Your risk appetite, ROI expectation with Time horizon
clarity will help you in finding a suitable product. In the current scenario,
casual buying may lead to erosion in capital or bad ROI generation.
Understand the component of Product: After choosing the product, you have
to choose the product provider from the market. Now here is a tricky thing,
before selecting any product provider, analyze the product structure and its
component. Try to recheck the capability of the solution provider from the record.
Yes, do agree that past performance is not a guarantee or assurance of future
performance but it helps in understanding the mindset and capability of the fund
manager, In the current scenario, if you can choose a better carrier, then it
may help you in getting better ROI without taking much risk or facing
volatility.
Buy businesses, don’t buy past
performances: X stock was
trading at Rs2000 in Jan, and now it’s trading at Rs 350, doesn’t make sense
for buying. Accept the fact, every stock has own intrinsic value and if the market
is corrected for 40% and the stock has fallen for more than 70% than there is
some issue with the business model. It may be or may not be having a decent
business model. Here, we are not saying that 100% it’s a wrong business model but each
decent business model will find buyers on some levels but if scrip is not able
to find that buyer than keep yourself away from that. There is the availability
of a lot many types of scrip in the equity universe. Do not unnecessary venture
into those scrips which are struggling in troubled water. Buy those stocks
which are sound in the business model and has the capability of sailing through
troubled water and has good cash flows from operations. Companies wherein
promoters stack is pledged beyond a comfortable limit or companies which have
lots of debt burden on the books, avoid them. Give preferences to large-cap
stocks compare to Mid Cap or Small Cap stock as these stocks will feel the
heat of Lockdown.
Step up Investment planning: Don’t go for single-shot buying in
the market. Be it Funds or Direct equity; try to go in a scattered manner.
Nothing is changing in one day. Averaging in the current market is the best
scenario to avoid the risk of market timing. You can’t time the market and in
this way, you will be in-market without much capital risk. STP and SIP are the best
tools for fund investment in the current scenario. If you have a decent amount
available after your emergency funds allocation and you want to go for Mutual
fund then better to go for STP, compare to Lump Sum investment. Daily STP can
be a key, which major of fund houses provides as the facility. Spread Lump sum
investment in the next 2-3 months or at least 30-40 installments for better
rupee cost averaging in lump sum investment. SIPs you may continue as it is
because they are long term products with the time horizon of 10-15 years.
Markets are looking good at valuations but we believe because of this
invisible enemy “COVID-19”, markets can remain uncertain for the next 4-6
months. It may be a good time to invest with the horizon of 4-5 years on the minimum
side. Systematic planning, the right mix of product, right product provider,
decent asset allocation with decent time horizon can deliver dream returns for the
next 4-5 years wherein risk & reward ratio will be favorable towards the investor.
Happy Investing!
Disclaimer: All views expressed in articles are
of Mr. Rohit Khandelwal. He is AMFI & IRDA registered advisor. The author doesn’t
hold any responsibility towards any accuracy of data or statistics. For any
investment advice, kindly call your registered financial advisor & before
investment, kindly read the offer document carefully. Moneymatters and its
employees don’t guarantee for any assured returns.
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