The stock markets across the globe saw carnage in the past week as the coronavirus pandemic spread to several countries in large numbers. As cases grew, countries began shutting down, amplifying fear of disruption in economic activity due to the virus.
In India, the Sensex and the Nifty plummeted to new lows every session last week. From January 20, when Sensex hit a lifetime high, the market capitalisation of BSE-listed companies fell by over 40 lakh crore as of March 17, 2020.
Alok Churiwala, MD of Churiwala Securities, says that what’s happening currently in the market is unprecedented. Stock markets function on hope. A stock rises when there is hope in investors that the company will do well, earn money and that will reflect in their valuations. And what causes it to crash is fear and uncertainty.
“What is causing this is fear of the coronavirus and fear that all economic activity all around the world will stop. With all economic activity coming to a standstill, the prognosis does not seem very good, at least till the time a cure for this virus is found,” Alok adds.
This has left several investors panicking over their money. While some have lost money, some look at this as an opportunity to invest while the markets are down. TNM spoke to a few experts to help you understand whether or not this is a good time to invest.
Is it a good time to invest?
While it seems like the market is bottoming out, experts suggest against trying to invest a lump sum right now.
“We will not recommend trying to catch a bottom because bottom fishing doesn't work. Calculations show a very high probability of a recession globally. In that case markets could stay down for a year, or more than a year or so. So, if you try to catch a bottom and invest now, it could go down another 20-30%,” market expert Ajay Bagga tells TNM.
At a time like this, experts suggest investing fixed amounts every month.
Melvin Joseph, founder of Finvin Financial Planners says that he has been receiving several calls from investors wanting to invest right now and he has been advising them to invest small amounts over a period of about five months.
“I have been telling my clients that if you have one lakh to invest, put in 20% now and do the same for next five months,” he adds.
Ajay and Alok also have the same advice.
“For the person who's not yet invested in the market, it's a no brainer for them to come with some amount of money, put in 20% at every fall and in about five tranches, you can complete your investment. Wait for a year or year and a half and you’ll see handsome returns,” Alok says.
Ajay too, says that whether in stocks or in mutual funds, investing fixed amounts every month should continue. “If you have a lump sum, invest over a period of time. So, suppose you have 1200 rupees, put 100 rupees in every month for the next one year,” he adds.
Be in it for the long haul
Experts recommend investing in the markets for a long term and not for short term gains.
“If you have a short-term requirement coming up, say in three to six months, then you should not have been in the equity markets at all. This is not a casino where you come in and try to double your money. That's a recipe for disaster. You have to be long term oriented, let the effect of corporate earnings growth work on the stock prices. That is the best way to look at the markets,” Ajay says.
Existing portfolio
Time spent in the market, experts say, leads to all the gains. This also means that selling stocks may not be the best idea right now.
If you spend time and get the benefit of compounding, as the fundamentals of the economy improve and as the earnings of companies improve, you will see that the fundamentals will reflect in the stock prices.
But at the same time, Ajay says that within your portfolio, if there are some laggards (stocks that are faring quite badly), then it would make sense to jettison them and then reinvest the money into more favourable growth stocks.
When will markets recover?
According to Melvin, the downfall in markets is likely to last for two years at least. He says that coronavirus fears were only a trigger. The larger problem was that while the US and Indian markets were at all-time highs, it was not supported by the fundamentals of the economy.
“The valuation levels are very high and there is no growth happening whether it is in India or in the US. The market was not really reflecting the index. The index was growing mainly because of 10 to 15 companies. Markets were waiting for a trigger and the trigger happened because of coronavirus. So, unless the economy picks up after the corona impact, it will take a minimum of two years for the market to slowly, slowly start going up,” he adds.
However, Alok says that what we are undergoing currently is total capitulation in the market. And when falls like this happen, if the reason why it is happening is reversed, a bounce back can be expected.
“It's falling because of the fear of coronavirus being unbridled and affecting large parts of the population. But let's say a cure or some kind of vaccine for it is found, then immediately the bounce back will also be as furious as the fall has been. But it's anybody's guess, as to when that kind of a situation will emerge,” Alok adds.