Looking at the current crisis, a pause is helpful for an average investor, who can either be scared and make losses or sit tight in the present situation.
By Hemant Sood
Indian equity markets have been in fluctuating due to the global markets affected by COVID 19. While markets look comparatively on the greener side, volatility will continue to remain high in the Indian markets. The bearish sentiments in Indian markets will continue and it is important that investors do not feel the hurry to invest or withdraw capital at the moment.
The further lockdown in India for 21 days has hit market sentiments across sectors. Though the lockdown has been extremely important to curb down the reach of COVID-19 into Stage 3 and forms the core for social distancing; the market capitalization of as many as 27 companies in BSE500 index, has fallen below Rs 20,000 cr recently, as per recent data reports.
A lot of large-caps have seen their market caps drop, majorly driven by market sentiments and shocks. Owing to the COVID 19 crisis, many mid-cap companies have become a medium to attract investors. Apollo Hospital, Trent, Pfizer, Tata Consumer, IRCTC, IPCA labs, Dr. Lal Path Labs, Gillette India, Bata India, Sanofi India, Akzo Nobel, Syngene, Balkrishna Industries and Godrej properties are some such companies which have taken the similar route.
From investors’ perspective, if the investor has a long term horizon and can wait for 4-5 years, it is suggested to start investing now and invest about 30 per cent of the investable corpus at the time lockdown opens on 14 April. But in case lockdown is extended, this may bring more volatility and markets will destroy investment sentiments and bring more panic leading to further market crash. They may accumulate some of the stocks in the mid-cap segment which have become highly attractive now, only if one plans to invest for long-term. The time is ripe to buy in a staggered process in the coming months as we do not see an uptick in the coming two-three months. The only thing is to keep in mind that fundamentals are intact of the companies which you are planning to invest.
Investors should give preference to debt-free companies; companies which have a direct impact of Covid19 should be avoided. Travel stocks should be avoided for the next one year as financial markets will take time to recover from the scare of deadly coronavirus. Investors should avoid stocks of travel companies, especially, focusing on South-East Asian countries. Right now it is good to invest in companies with good fundamentals. Insurance, pathological labs and consumption industries should remain the flavour for some time.
Various sectors and companies have been affected in the last one month in the country. The automobile sector is reeling due to low demand and sales are down by 80%. Many auto companies, which had enabled work from home for their office employees, have suspended production in most of their manufacturing plants. Gyms, malls and movie halls are closed hitting the sales. The hospitality industry is hit due to lockdown on international tourism, and India airlines are facing a squeeze in demand accentuated by the week-long ban on domestic flights. Finance, automobile, entertainment, tourism and NBFC have all gone fundamentally weak and will take at least two quarters to recover.
Equity mutual fund investors are also confused about whether to stay invested or exit. Both markets and investors are going through choppy and volatile mood and the long term wealth has also eroded. Though no one can time market, investors should try and average out their NAVs now. In addition, it is also suggested that the markets may go down more so they should have more funds to invest in every fall. While there are few fancy sectors like pharma and FMCG but even then the investments should be made in diversified funds only.
Looking at the current situational crisis, a pause is helpful for an average investor, who can either be scared and make losses or sit tight in the present situation. It is suggested to contemplate and take a deep breath and then ask yourself, “Is there any change in your long-term goals?” If the answer is no, one should ignore the market volatility and wait patiently.
(The author is Managing Director, Findoc Financial Services Group. The views are personal.)