- Date : 24/08/2020
- Read: 6 mins
Analysts see opportunities in the current crisis unlike no other, and investors will stand to gain if they don’t forget their goals.
In the IMF’s World Economic Outlook report for April, its chief economist Gita Gopinath said the current slowdown following the COVID-19 outbreak is “unlike anything experienced in our lifetimes”. Calling it the Great Lockdown, she claimed it was the worst recession since the Great Depression, and far worse than the Global Financial Crisis.
The Great Depression that Gopinath referred to was, of course, the global recession that followed the Wall Street crash of October 29, 1929, while the ‘Global Financial Crisis’ is the worldwide meltdown that followed the collapse of the investment bank Lehman Brothers in September 2008.
This apart, three epidemics from ‘our lifetimes’ have cropped up in recent discussions – SARS, MERS, and the Ebola outbreaks. However, these were mostly localised, and unlike the current situation, did not scar the Indian economy or the markets. At the same time, there were a few financial crises that did touch India, though this impact was fleeting, with our economy recovering comparatively quickly.
Fleeting impact
The first was the ‘Asian Crisis’ of July 1997, when the Thai baht collapsed after it was delinked from the dollar, severely impacting several Asian economies (Thailand, Indonesia, and South Korea were the worst hit). Then 2000–2002 saw the rise and fall of the dot-coms – Internet companies with a ‘.com’ suffix. And September 2008 saw Lehman Brothers collapsing, triggering a worldwide meltdown.
It must be noted that the markets fell each time, only to recover again. This is evidenced by how the Sensex moved during these periods:
- It went down 40% over four years following the 1997 Asian Crisis, but shot up 115% in just a year
- It fell by an even bigger margin (56%) after the dot-com bubble burst, only to post a bigger recovery (138%) in about 18 months
- It crashed by 61% after the collapse of Lehman Brothers, but recovered 157% in 1.5 years.
Related: How to prepare yourself financially during a pandemic
Market recovery
Indian investors, it would seem, are hoping for a similar revival once the current crisis blows over, though in the first three months of 2020, the Sensex dipped 28.6%, marking its sharpest quarterly fall since 1992. Alongside, it entered a ‘bear phase’, having registered a fall of over 20%. Bank credit growth decelerated to a five-decade low of 6.14% in the fiscal ending March 31.
Yet, despite everything, the beginning of the end to the doldrums may have just begun. April, despite a bad beginning, turned out to be the best month for markets in 11 years, which jumped 14%.
For Akash Singhania, fund manager at Motilal Oswal Mutual Fund, market recovery begins not when one sees the light at the end of the tunnel, but when it is a shade less dark than it was. “In my view, our markets are quite close [to recovery],” he told Value Research.
However, the normalisation process of the economy could take a few weeks to a few months, feels Harsha Upadhyaya, CIO Equity, Kotak Mutual Fund. It depends on when the spread of the disease is contained, he said in a conversation with Value Research.
Related: COVID-19: Some Frequently Asked Questions
Backing equity
Upadhyaya believes Indian equities have reached very attractive valuation levels for long-term investors, who he says could create lot of wealth once the situation normalises. Other analysts agree. In an interview with ET Now, Sampath Reddy, CIO at Bajaj Allianz Life, says long term investors have “some buying opportunity” as market valuations are undergoing sharp corrections.
In Reddy’s view, past market downturns during the dot-com crash and the 2008–09 financial crisis have shown that investors gain from investments made in difficult times so long as they had a long-term horizon. His advice: investors should gradually start deploying in equities, as per their risk profile.
Mumbai-based mutual fund distributor Rushabh Desai is backing small-caps, saying this space has seen corrections by about 30% over March, but advocates lump-sum investments. His advice: lump-sum investors should buy small-caps “strictly in the correction periods” to get the alpha deserved from this category. (Source: economictimes.indiatimes.com)
Favourable sectors
So how should one allocate one’s funds? Vishal Dhawan, CEO of Plan Ahead Wealth Advisors told Bloomberg-Quint that he favoured a 70-20-10 mix in the portfolio. That is, 70% to large-cap funds, 20% to mid-cap funds, and 10% to small-cap funds over a period of 7–10 years.
Aamar Deo Singh, Head Advisory at Angel Broking, has a word of caution, given the uncertainties. His advice during a chat with Financial Express: watch out for vulnerable sectors and invest in strong businesses in 3–4 tranches.
Going by that advice, note the stocks that have underperformed in the market: these were mostly from the financial sector (comprising banking, NBFC, housing finance, and insurance), which fell some 40–43% during January–March. Other sectors that underperformed are auto, metal, and real estate.
Sectors that are expected to perform well include FMCG, healthcare, and pharma, as well as select stocks in telecom. Pharma, FMCG, and IT stocks incidentally fell by 11%, 9%, and 18% respectively in the first three months, and look set to withstand the current downturn, although with lower earnings.
Related: Demand for gold loans on the rise as economic woes loom
Last words
To repeat a point mentioned earlier, investors are witnessing a full-blown bear market for the first time in a decade. At such times, it is easy for investors to get cold feet about investing. The thing is, the longer one waits for the markets to recover fully, the greater are the chances of falling behind when the markets do recover.
Ideally, if you are hesitating about making a re-entry into investing and stopped as COVID-19 began to spread, you should start thinking of making a staggered entry sooner than later, provided you have the funds. And while equity funds could be useful for investors with longer time horizons (say, 5–10 years or even more) it is also important that investors have a fixed income.
Also, provided you have the funds, it is not advisable to stop your SIP. This is because businesses with strong fundamentals will outperform in difficult market environments in the long run, and you can benefit from rupee cost averaging and buy incremental units. In fact, given the risks of a significant slowdown because of the pandemic, adopting a SIP approach could be the best route going forward, compared to lump-sum investments.
Related: Can you beat the slowdown with SIPs?
Ultimately, it is all about controlling what can be controlled, sticking to the basics, and not taking decisions in panic – whether one is selling or buying – especially in a knee-jerk reaction to ‘news’ gleaned from social media or WhatsApp. Fixed deposit, savings account, or liquid funds? Read this to know how to be financially prepared during a pandemic.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
In the IMF’s World Economic Outlook report for April, its chief economist Gita Gopinath said the current slowdown following the COVID-19 outbreak is “unlike anything experienced in our lifetimes”. Calling it the Great Lockdown, she claimed it was the worst recession since the Great Depression, and far worse than the Global Financial Crisis.
The Great Depression that Gopinath referred to was, of course, the global recession that followed the Wall Street crash of October 29, 1929, while the ‘Global Financial Crisis’ is the worldwide meltdown that followed the collapse of the investment bank Lehman Brothers in September 2008.
This apart, three epidemics from ‘our lifetimes’ have cropped up in recent discussions – SARS, MERS, and the Ebola outbreaks. However, these were mostly localised, and unlike the current situation, did not scar the Indian economy or the markets. At the same time, there were a few financial crises that did touch India, though this impact was fleeting, with our economy recovering comparatively quickly.
Fleeting impact
The first was the ‘Asian Crisis’ of July 1997, when the Thai baht collapsed after it was delinked from the dollar, severely impacting several Asian economies (Thailand, Indonesia, and South Korea were the worst hit). Then 2000–2002 saw the rise and fall of the dot-coms – Internet companies with a ‘.com’ suffix. And September 2008 saw Lehman Brothers collapsing, triggering a worldwide meltdown.
It must be noted that the markets fell each time, only to recover again. This is evidenced by how the Sensex moved during these periods:
- It went down 40% over four years following the 1997 Asian Crisis, but shot up 115% in just a year
- It fell by an even bigger margin (56%) after the dot-com bubble burst, only to post a bigger recovery (138%) in about 18 months
- It crashed by 61% after the collapse of Lehman Brothers, but recovered 157% in 1.5 years.
Related: How to prepare yourself financially during a pandemic
Market recovery
Indian investors, it would seem, are hoping for a similar revival once the current crisis blows over, though in the first three months of 2020, the Sensex dipped 28.6%, marking its sharpest quarterly fall since 1992. Alongside, it entered a ‘bear phase’, having registered a fall of over 20%. Bank credit growth decelerated to a five-decade low of 6.14% in the fiscal ending March 31.
Yet, despite everything, the beginning of the end to the doldrums may have just begun. April, despite a bad beginning, turned out to be the best month for markets in 11 years, which jumped 14%.
For Akash Singhania, fund manager at Motilal Oswal Mutual Fund, market recovery begins not when one sees the light at the end of the tunnel, but when it is a shade less dark than it was. “In my view, our markets are quite close [to recovery],” he told Value Research.
However, the normalisation process of the economy could take a few weeks to a few months, feels Harsha Upadhyaya, CIO Equity, Kotak Mutual Fund. It depends on when the spread of the disease is contained, he said in a conversation with Value Research.
Related: COVID-19: Some Frequently Asked Questions
Backing equity
Upadhyaya believes Indian equities have reached very attractive valuation levels for long-term investors, who he says could create lot of wealth once the situation normalises. Other analysts agree. In an interview with ET Now, Sampath Reddy, CIO at Bajaj Allianz Life, says long term investors have “some buying opportunity” as market valuations are undergoing sharp corrections.
In Reddy’s view, past market downturns during the dot-com crash and the 2008–09 financial crisis have shown that investors gain from investments made in difficult times so long as they had a long-term horizon. His advice: investors should gradually start deploying in equities, as per their risk profile.
Mumbai-based mutual fund distributor Rushabh Desai is backing small-caps, saying this space has seen corrections by about 30% over March, but advocates lump-sum investments. His advice: lump-sum investors should buy small-caps “strictly in the correction periods” to get the alpha deserved from this category. (Source: economictimes.indiatimes.com)
Favourable sectors
So how should one allocate one’s funds? Vishal Dhawan, CEO of Plan Ahead Wealth Advisors told Bloomberg-Quint that he favoured a 70-20-10 mix in the portfolio. That is, 70% to large-cap funds, 20% to mid-cap funds, and 10% to small-cap funds over a period of 7–10 years.
Aamar Deo Singh, Head Advisory at Angel Broking, has a word of caution, given the uncertainties. His advice during a chat with Financial Express: watch out for vulnerable sectors and invest in strong businesses in 3–4 tranches.
Going by that advice, note the stocks that have underperformed in the market: these were mostly from the financial sector (comprising banking, NBFC, housing finance, and insurance), which fell some 40–43% during January–March. Other sectors that underperformed are auto, metal, and real estate.
Sectors that are expected to perform well include FMCG, healthcare, and pharma, as well as select stocks in telecom. Pharma, FMCG, and IT stocks incidentally fell by 11%, 9%, and 18% respectively in the first three months, and look set to withstand the current downturn, although with lower earnings.
Related: Demand for gold loans on the rise as economic woes loom
Last words
To repeat a point mentioned earlier, investors are witnessing a full-blown bear market for the first time in a decade. At such times, it is easy for investors to get cold feet about investing. The thing is, the longer one waits for the markets to recover fully, the greater are the chances of falling behind when the markets do recover.
Ideally, if you are hesitating about making a re-entry into investing and stopped as COVID-19 began to spread, you should start thinking of making a staggered entry sooner than later, provided you have the funds. And while equity funds could be useful for investors with longer time horizons (say, 5–10 years or even more) it is also important that investors have a fixed income.
Also, provided you have the funds, it is not advisable to stop your SIP. This is because businesses with strong fundamentals will outperform in difficult market environments in the long run, and you can benefit from rupee cost averaging and buy incremental units. In fact, given the risks of a significant slowdown because of the pandemic, adopting a SIP approach could be the best route going forward, compared to lump-sum investments.
Related: Can you beat the slowdown with SIPs?
Ultimately, it is all about controlling what can be controlled, sticking to the basics, and not taking decisions in panic – whether one is selling or buying – especially in a knee-jerk reaction to ‘news’ gleaned from social media or WhatsApp. Fixed deposit, savings account, or liquid funds? Read this to know how to be financially prepared during a pandemic.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
