Volatility is friend of long term investors in equity market: Motilal Oswal

By: |
June 1, 2020 8:45 PM

Sharp correction and volatility also make stocks cheaper and attractive for long term investors, they said amid markets globally remaining volatile due to uncertainties rising out of the coronavirus pandemic.

Equity markets, Volatility, Motilal Oswal, coronavirus pandemic, sensex, lockdown in India, PHYGITAL modelThe pandemic and subsequent lockdown in India as well as many other countries have also significantly disrupted overall demand and economic activities.

Equity markets are likely to remain volatile till there is a semblance of normalcy returning even though volatility is the friend of long term investors, according to analysts at Motilal Oswal Financial Services.

Sharp correction and volatility also make stocks cheaper and attractive for long term investors, they said amid markets globally remaining volatile due to uncertainties rising out of the coronavirus pandemic.

Since February, markets have fallen sharply with the Sensex tanking over 7,000 points till date. March was the worst hit month as the index had plunged 8,828.8 points then. The government imposed a nationwide lockdown to curb spreading of coronavirus infections from March 25.

“Till we see a semblance of normalcy returning, markets are likely to remain volatile. In such times of global volatility, retail investors should keep calm and not panic.

“Once the pandemic comes to an end, there will be a slow and gradual comeback of organisations to their normal operational level and growth will come in as systems are again put in place,” Ajay Menon, MD & CEO of Motilal Oswal Financial Services said.

He said major economic issues in the past have impacted the market, which has recovered over time. “In fact, such sharp correction and volatility is the friend of long term investors as it makes good stocks cheaper and attractive.

More stimulus measures are likely to be announced in the coming days as various governments have adopted a phased rollout approach.

“Hence, we believe that these measures could potentially help in avoiding a hard economic landing (smoothen the economic slowdown impact in the near term),” Menon said.

The pandemic and subsequent lockdown in India as well as many other countries have also significantly disrupted overall demand and economic activities.

Siddhartha Khemka, Head of Retail Research at the brokerage firm said while the first round of the pandemic spread has caused havoc across large economies, there is a fear of a second wave and extended period of economic slowdown.

“The earnings season and the management commentaries so far also suggest more volatility and disruption in earnings ahead. “We expect the market direction to depend upon the spread and intensity of COVID-19 cases, development around vaccine and incremental government/ regulatory actions to restart the economy,” he said.

According to him, investors should also track how soon economy is able to get back to normal and the situation on the banking NPAs/ moratoriums front.

“Developments around the trade tensions between US and China are resurfacing and could be another risk to keep an eye upon,” he added.

In the past crisis, Menon said that a combination of extreme fear and attractive valuations provided good foundation for healthy long-term equity returns. Thus, the best strategy for investors would be to accumulate good fundamental and quality stocks gradually over the next few weeks and months, he said, adding that markets may continue to remain volatile and any fall in near-term would be the time to become greedy.

The analyst also favoured use of a new model ‘PHYGITAL’, a mix of physical and digital approach, in their business to attract prospective investors and to service existing clients.

“Good digital interface can prove to be a prompt vehicle to trade while a good counsellor ensures that wise investment decisions are taken. This certainly makes PHYGITAL model the need of the hour in broking,” Menon said.

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