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 doesn’t know the reality. We are in lockdown since 25th
March 2020 and it will continue up till 3 rd 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. 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 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 have 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 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 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 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.
