This article has been written by Aditya Malhotra, a digital marketing professional with over 6 years of experience across sectors like Sports, Health, Banking and Finance, Entertainment and Retail. Today, he works as a Team Lead at Bajaj Finserv.
The unprecedented global lockdown, prompted by the Covid-19 virus has bought the world to a standstill. And while social media and news channels continue to bring us minute by minute updates of tragic stories from around the world, the only thing which can possibly make things worse is being in a state of panic! Easier said than done.
While every single person is updated with some form of reality of what is happening around the world from their living rooms (Thank you Whatsapp University and fear mongers), the best thing we can do is take all the precautions we can, maintain discipline, and try being as rational as you possibly can with everything you do.
This includes investing.
One of the more publicized victims of the Coronavirus is the global economy. And make no mistake, it is a victim. A victim with one of the most far-reaching impacts in the times to come. Jobs, salaries, livelihoods, even fully functioning businesses are at risk. The Indian stock market has fallen over 30%, triggering circuit breaks twice in as many weeks.
But is this also a hidden opportunity for investors? And if yes, what are the opportunities to be taken?
Note : This is merely a personal point of view from an understanding of market conditions.
Let’s begin with what drives the price of a stock.
News and Sentiment, yes.
Company earnings and profitability, yes.
But it’s a no-brainer as to what direction these factors are taking. And ultimately, it is basic demand and supply that drives market prices. And this is where having a solid investment strategy can help you maximize gains by investing now.
In the current scheme of things, some key points to help formulate this strategy are:
- Choose wisely: The market volatility has been breaking global records. There will be some industries which emerge from this sooner than others. Everyday utilities, pharma, FMCG are some sectors which could flourish soon. Exposure to finance, aviation and tourism could result in some heartbreak when considering returns.
- Do NOT get over-ambitious: While this is a good opportunity to buy stocks at a ‘discount’, one of the more commonly made mistakes are buying ‘low cost’ (or penny stocks) without a clear understanding of the company fundamentals with the hope of disproportionate gains. Investing in companies with a proven track record, and their current and future plans are still your best bet to grow your hard earned money over a period of time. We still don’t know how the world will react and contain this pandemic. Economic recovery comes AFTER that. With NO fixed timeline.
- GOLD: Gold is considered as a safe haven and an effective store of value, especially in times of distress. With excess liquidity in the markets at this point in time, lowering of interest rates (as far as zero or negative in some cases), inflation is bound to rise to push up commodity prices. Since India imports a majority of its gold, coupled with inflation, the price of gold will only keep rising to the falling rupee.
- Lump sums vs Mutual Funds: Investing in a market with fear and uncertainty over where we will bottom out is a very high risk proposition. Investing indirectly in the market through SIP’s is the prudent approach, factoring in rupee cost averaging which will hold you in good stead in the long run. Apart from this, Government Bonds and Debt instruments is another investing avenue that can be explored.
In conclusion, despite the world being in a state of shock and economies paralyzed, investing and multiplying your money is a never ending endeavour. While being liquid in these times is also necessary, this time can be used to plan and create a strong portfolio.
Investing as a concept in India has still only penetrated a very minute population, whereas the potential in Indian markets is immense. For first time investors who will be scared away from this drastic dip, this has happened before. And will happen again. We will recover, and even multiply our capital again. It is, and will always be, a matter of patience and discipline.
As parting advice, which will ALWAYS hold true, “Buy when there’s blood in the streets, even if the blood is your own.” – Baron Rothschild