It was when the World Health Organization (WHO) issued a warning that the coronavirus threat could turn into a pandemic that market participants worldwide woke up to the enormity of the situation, lost their nerve and dumped stocks like hot potatoes. The sell-off that followed thereafter, increased in intensity with every new geography and spate of new cases being reported. Worse still, it was estimated that a vaccine to control this virus might still be a while away.
As for the Indian markets, while the fall in the stock indices was steep, one must also remember, that there was an inexplicable run up sans any fundamental reason over the previous six months. Talking of fundamentals, it has been clear for a while now that stock valuations, particularly of the frontline or large-cap stocks, had been stretched and a correction was overdue. Well, that has happened now. So, where will the Indian equity market head from here? I won’t duck that question and will stick my neck out even at the risk of ending up with egg all over my face. After all, the forecast hinges on the duration of the malevolent effect of the coronavirus. My take, as always, is there is no one size fits all strategy to move ahead with. It largely hinges on an investor’s time frame and capacity to bleed and bear.
If I had an investment time frame of at least 30-36 months or more, I would bite the bullet and stay invested in equities and if my budget permitted it, start or top-up SIPs or STPs in mid- and small-cap funds that can deliver sharp returns when the market reverses and trends upwards again. I would also make sure I have the appropriate percentage in Gold Exchange-Traded Funds (ETF) or funds as a hedge. If I had an investment time frame of 15-30 months, I would consider switching to a lower risk grade of funds within the equity space and if my budget permitted it, start or top-up SIPs or STPs in mid-cap funds that can deliver good returns when the market reverses and trends upwards again. Here too, I would make sure I have some investments in Gold ETFs or funds as a hedge.
Finally, if I had an investment time frame of less than 15 months, I would already have exited equities at least partially, and shifted the proceeds to debt funds. If my budget and risk profile permitted it, I would have punted on gold funds and periodically booked short-term profits when it rose with every slip in the market.Well, the global health scenario and economic situation are fluid, and even if one’s carefully constructed portfolio has thus far survived most of the vertical market falls, one must brace for some pain ahead. This is par for the course as when one invests in equities, the long-term rewards can be substantial.
So, decide how long you can weather the blows, stay calm and take measured investment decisions while the coronavirus storm passes. Also, factor in that it might take longer than anticipated.
Ashok Kumar
heads LKW-INDIA. He can be reached at ceolotus@hotmail.com
