The Corona Virus pandemic has literally brought down economies of countries all over the world. Not only are countries suffering economically, but it’s also each one of us as individual investors who are facing the burden of the novel COVID-19. With no answers in sight as to when this pandemic could potentially end, all we can do is speculate and brace ourselves to protect what we have and build for the future while the chips are down.
Over the past fortnight, we have been connected to various Fund Managers from the Indian Mutual Fund Houses through detailed con calls & notes on the markets, to get a perspective as to what they think about the equity market. These are purely their insights and understanding of the situation going by their years of experience.
We have compiled a synopsis of some key points & recommendations that emerged from these interactions.
Here are 5 key points for consideration for the equity market during COVID-19:
1. Equity Markets to remain volatile until a medical solution to COVID-19 is found. The “Time Machine” concept has kicked in. Several Large, Mid, Small & Micro Cap stocks are available at multi-year low prices, which is also a great time to enter into the market if you haven’t already. Some of these stocks might not see such a low price in the near foreseeable future again.
2. This is not the first time the market has witnessed such deep falls. The current fall is not as deep as the one in 2008.
Here’s a timeline of some of the major recessions we’ve seen in the recent past vis a vis how it recovered:
Global Recession (1986-88)
Market Fall – 40.8%⬇️
Post Return 3Yrs – 199.5%⬆️
Gulf War/India Fiscal Crises (1990-91)
Market Fall – 39.3%⬇️
Post Return 3Yrs – 320.5%⬆️
Harshad Mehta Scam (1992-93)
Market Fall – 56.4%⬇️
Post Return 3Yrs – 90.2%⬆️
Stock Market Stumble (1994-96)
Market Fall – 41.6%⬇️
Post Return 3Yrs – 73.8%⬆️
97 Market Meltdown (1997-98)
Market Fall – 40.5%⬇️
Post Return 3Yrs – 11.7%⬆️
Dot-Com Bubble (2000-01)
Market Fall – 57.1%⬇️
Post Return 3Yrs – 110.6%⬆️
Central Election Results (2004)
Market Fall – 32.4%⬇️
Post Return 3Yrs – 238.3%⬆️
High Inflation (2006)
Market Fall – 30.6%⬇️
Post Return 3Yrs – 73.2%⬆️
Financial Crisis (2008)
Market Fall – 63.7%⬇️
Post Return 3Yrs – 124.6%⬆️
European Sovereign Debt Crises (2010-11)
Market Fall – 11.6%⬇️
Post Return 3Yrs – 80.8%⬆️
Everytime a crisis has evoked a tremendous fall in the markets, it has always recovered and gone up to level higher than it was before.
3. Rebound in some sectors & stocks could be very quick too such as consumer durables, FMCG, Pharma, to name a few.
4. We are currently going through Systematic Market Risk. This risk is not specific to any one economy, industry or company fundamentals. So we can’t equate the current prices with the real fundamentals of stocks.
5. Rebound will be determined by “Deferment of Demand” vs. “Destruction of Demand”.
For example:
A person wanting to buy a car can defer this decision for a few months & then buy it later. But, a person wanting to watch a movie in a mall in April 2020 cannot defer this decision & watch all the missed movies together a few months later. This is the case of destruction of current demand.
Companies’ & stocks’ ability to rebound will also be determined by this factor.
6 recommendations that the expert have:
1. Continue with your SIPs
2. Start new SIPs wherever possible to take advantage of the extreme volatility opportunities
3. For lump sum surplus investments in Equity Funds, allocate 50% in 5 to 10 tranches now; allocate remaining 50% in liquid funds for investment in equity after the medical solution or any other confidence boosting measure is found
4. Stay invested (unless you need any money for immediate requirements which is anyway provided for through your emergency liquid funds)
5. Focus on the positives
Let us know in the comments below what are your strategies to deal with the equity markets in this COVID-19 situation.
