Testing times: Patience is the key to riding out the storm in the markets

June 30, 2020 6:00 AM

The government and Reserve Bank of India (RBI) have taken a host of steps to help people affected by the pandemic and the lockdown.

The reduction in repo rate and loan moratorium is expected to help individuals meet their loan obligations.The reduction in repo rate and loan moratorium is expected to help individuals meet their loan obligations.

We are going through very dangerous times due to the coronavirus pandemic and the stock market is mirroring that uncertainty on a day-to-day basis. No one has seen anything like this before and it is completely different from recent fallouts such as the global financial crisis of 2008. The government and Reserve Bank of India (RBI) have taken a host of steps to help people affected by the pandemic and the lockdown. The reduction in repo rate and loan moratorium is expected to help individuals meet their loan obligations.

Do not take risks
The post-Coronavirus situation of the stock market is currently very hard to predict, but one thing is for sure that the market and the economical situation will get better. People are currently facing a lot of financial issues due to this pandemic and the subsequent lockdown. Stock market players are not the same as they were earlier. They are now more cautious about their buying and selling decisions.

However, there are some people who see this as an opportunity to gain wealth by taking risks. But looking at the current situation and the unpredictability of the market, it is not advisable to take risks at the moment. We certainly do not know how long we will have to continue like this, but we can do the best we can and hope that things get better soon.

The recent India-China tiff over the Line of Actual Control (LAC) has further aggravated the market instability, causing a negative impact on the economy. Many companies and individuals are facing a huge loss due to this sudden conflict. But this situation explains the nature of the stock market at its best. The volatility and instability of this market has increased over the past few months and may remain so for the next few months.

Hold on to cash
People are advised to not take on any debts at the moment and hold on to their cash as much as they can. Proper planning and discipline can help people secure their finances in this situation. No doubt the current stock market situation looks bleak, but this is not the first time that stocks have fallen like dominoes. In the past, many crises have occured when even the stocks of the most successful companies have fallen by 80% or more. But once the situation stabilises, the companies that have a good foundation begin rebuilding themselves and reach their pre-crisis valuation—some even exceed it.

This is why, as investors, people have to be wary about panic selling. The situation might look like a disaster right now, but in 10 years it will be a mere blip on the cosmic radar. Once the situation resolves, and it will, demand would increase in the market and companies would once again start generating profits. Even now, amid all this chaos, there are certain products that are absolutely necessary for sustaining life, and the companies that are making those products are doing better than others. This is why long-term investment in top companies is the best way of generating capital. Being patient in this time of crisis can pay huge dividends later.

The writer is founder & CEO, Finway

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