Those who survive are not the most intelligent or strongest. They adapt. In a letter to company founders last week, Sequoia, a global venture capital firm, flagged a quote from Charles Darwin, the legendary biologist. It is an alert on the situation the world faces and a guideline from experience on ways to navigate it. The last time the bank sent out such an email to founders of businesses it invests in was in 2008, during the global financial crisis.
India’s financial markets are witnessing an onslaught of the local and foreign selloff. The COVID-19 or coronavirus pandemic is tapping new people in countries far away from China. The number of infections is rising in India too. Meetings, gatherings, conferences, business events, travel for business and leisure are all getting rescheduled, cancelled or postponed.
All of that would hurt economic activity everywhere. Indian companies are not protected from the imminent slowdown. To add to that, any prolonged illness among people would dramatically hurt the supply of goods and services. China is the world’s factory.
However, if the global supply chain remains affected, the world would witness supply shocks. Prices of goods could rise due to shortages. Everything goes into a tailspin, and it turns out to be a long and tough recovery.
As businesses strive to navigate the crisis world over, quick response on personal finance could save you from any future erosion of wealth. If you are already familiar with the diversification of assets, let us hope you have implemented it.
If you are not, it is high time you read up and take action. The volatility in financial markets is not for the faint-hearted. It is very easy to tell people to be prudent and not put money in one basket. However, it is not easy to absorb the situation if you see the value of money get eroded rapidly.
Double whammy
India’s stock markets are going through a nasty phase too. If you are a shareholder or bondholder in Yes Bank, you need a strong will to hang in there. The Reserve Bank of India action over the weekend to supersede the board and put the bank on a ‘moratorium’ under powers given to it, shows that the government will take care of depositors.
The cascading impact of this action is felt across the banking sector. Those banks that have a lot of bad or suspicious loans would take a beating. The State Bank of India, the largest public sector bank, has witnessed a selloff in share prices. It is taking over the troubled Yes bank. The entire financial system witnesses a contagion. It spreads across even unrelated businesses.
What to do
If you are new to the world of investing, do not try any new investments. It is highly unlikely that you would get any objective advice. Stay in touch with your financial advisor and ask questions. Read up as much as possible related to the present situation. A fundamental lesson from the Yes Bank crisis is that financial learning has no boundaries.
You cannot hide behind the cover, not knowing finance or being not interested in it. If there is news about your bank, your stockbroker, the insurance company you have bought a policy from, or any other institution where you are a customer or a shareholder. It may be a good idea to read the information on these organisations and not wait for your financial advisor to tell you.
Financial markets move in cycles. World markets have witnessed a dramatic rally over the past 10 years. India’s stock markets have moved in tandem. A sharp rally in asset prices leads to market values running ahead of fundamentals.
The pandemic situation is just an excuse to correct. Most analysts at the World Bank, IMF and other institutions predict a slow recovery from past experiences.For seasoned investors, many are perhaps waiting in the wings for the volatility to subside and move in.
When asset prices fall sharply, they get attractive from a valuation standpoint. Those who research financial markets regularly, there could be opportunities.It is no time to be a hero for those who are new to investing. It may be enough to survive the fall by maintaining the status quo and staying invested. (The writer is editor-in-chief at www.moneyminute.in)
A contagion in the banks
The cascading impact of the Yes Bank crisis is felt across the banking sector. Those banks that have a lot of bad or suspicious loans would take a beating. The entire financial system witnesses a contagion. It spreads across even unrelated businesses.