Are you worried about coronavirus meltdown on your portfolio? We help you think through this

With markets losing about 35-40% over the last 2 months, your portfolio must be gasping for breath. We tell you how to gain sanity in this mad world of volatility

Kumar Shankar Roy Mar 25, 2020

Portfolio VolatilityIndian stock benchmark indices on Monday logged their worst day in history. The Nifty slipped to 7,610.25, down 1,135 points while Sensex plummeted 3,935 points to 25,981. The markets nosedived after the nationwide crackdowns were begun due to the Coronavirus outbreak, and economic activity came to a standstill. Indian benchmark indices are down over 30% in a month, and there is no concrete sign of things bottoming out soon. On Tuesday, markets recovered by 3%, but let us admit the overall loss position hasn’t improved much. Compared to 1-year back, many good stocks have seen 30-50% compression. You as an investor are understandably depressed. Your portfolio most likely is in deep red. Mutual funds are affected too. The best-performing equity fund is down 10% while the worst one is down 35%. What should you do? Should you buy? Do you give in and sell lock, stock and barrel? Or, do you simply wait? Here are the answers.

To do or not to do

Your portfolio is down. The % loss number is pretty scary. But, this is equity-linked investing. In stock market investments, the returns are not in the form of a straight line. There will be ups and downs. You do not need to react to portfolio changes by doing something. You are not the only investor whose portfolio has faced a loss. Believe us, there are thousands, even lakhs out there.

Truth is you are under no compulsion to react. If your investment portfolio has high-quality stocks, these will recover when the tide turns. In case you are a mutual fund investor, the entire investment management responsibility is your fund manager’s. You have outsourced those worries to him/her because you didn’t want to take them at first. Over the years, the Sensex and the Nifty have dropped quite a bit in a quick pace too, but recovery has happened. The Sensex and the Nifty are not the entire market, but the ups and downs story plays out for most of the stocks.

Ask yourself: Do you need to do something about your equity portfolio? If your answer is no, then stop reading this article. Continue your investment process and be at peace. If you do not want to or do not feel like investing at this juncture, it’s perfect. Be comfortable. Let the situation evolve. Do not redeem.

In case you want to do something about your equity portfolio, proceed reading.

Take a view on Coronavirus outbreak situation

Okay, so you want to do something about your investment portfolio. The first and foremost question that you need to honestly answer as you consider making some changes/modifications to your equity portfolio is this: Do you think the coronavirus pandemic will go away in a few months, or this will become an existential crisis that only gets bigger with the passage of time?

An honest answer to this question is very important. I know the average financial investors are probably not a medical expert. But, having a view on the coronavirus outbreak is important. Truthfully speaking, nobody knows the right answer. However, it is important for you to come to a conclusion as you chart out your strategy.

If the coronavirus situation is resolved with control or discovery of a medicine/vaccine, things will get sorted in a matter of months. This sets the stage for an eventual recovery, which will be quick. You can proceed with lumpsum investments in such a scenario because markets will swiftly change their course on one fine morning. You can’t catch the exact day when this will happen, but you can prepare your equity portfolio for it. Like the peak, the nadir does not announce itself. It is only in hindsight that such things appear. We have seen it.

On the other hand, if you think the coronavirus effect on global economy and India will only get bigger, there is nothing for you to do right now. The first 1 lakh cases happened in 67 days. The 3rd 1 lakh case milestone has been hit in 5 days flat. If you are preparing for an apocalypse, there is no point in being in investments. Stay in cash and look at plans that will help you survive this gargantuan crisis. We are not saying this: You believe in this. So, act accordingly.

Too late to join the bears

Bulls in the stock market have been cornered by the bears. Indian markets have already lost over 30% value in just a month. The worst year for markets i.e. 2008, saw markets lose 52%. If the same situation repeats itself, we are 20% away from hitting rock-bottom. A 20% correction from here on would mean about 21,000 on Sensex and about 6,000 on Nifty.

We see little merit in selling now. A lot of the pain has already been experienced for long-term investors. Plus, in the wake of the prolonged rout in domestic stocks, market regulator Sebi has stepped in to ease volatility by clamping curbs on short positions in the F&O segment, increasing margins in non-F&O stocks in the cash market and revising the marketwide position limits. Shorting the market is a risky trade and things have become tougher.

You could disagree and say that markets could fall much more they fell in 2008. Though nothing can be ruled out at this stage given the paucity of coronavirus test kits in India and the resulting lack of real picture, doomsday predictions are best avoided. Unless things get totally out of hand, for instance, an Italy like situation happens in India or worse, markets should take support soon as valuations already have become attractive. As we write this, the government has announced a complete lockdown in India for next 21 days, and that is likely to put a break on the community spread of the disease. So there is some hope there that the disease spread may not accelerate as compared to a loose lockdown situation.

Be wary of short-term bounces and do not proceed with any investing that centres around investing all your capital at one point in time. The situation is still very fluid. One-way bets centered around one single moment in time would not be an optimal decision. It would be best to stagger your lumpsum investments over the next 1-3 months, if at all you want to do them. For mutual fund investors, creating new SIP accounts should work fine with a 15-24 month horizon.

Good news: The world will survive

The world isn’t coming to an end. That’s the truth. Governments around the world are working to make things better. The Indian central government and the state governments are at it. During these times, fear is probably more infectious than the actual disease.

Coronavirus outbreak has not made Indian companies bad. Foreign investors who are selling are doing so across markets. The Indian stock market is nervous and anxious because there is uncertainty. There are no clear-cut estimates of the total impact of a stoppage of economic activity for some months. This is the unknown that troubles equity markets and pockets in debt markets.

But as other crises, such as dotcom bubble, Lehman Brothers bankruptcy etc. have shown, this too shall pass. Things move about and finally settle. That’s how nature works.

Yes, there will be a negative impact but stocks have already discounted that. A stoppage of a quarter or two, at the most, should not mean that the current value of entire future earnings power of all companies globally will reduce by 50%. Once you realise this, it will all start to make sense.

2020 has given every investor a life-time opportunity to accumulate top-quality stocks, thanks to this fire-sale. Once the word on the street is out and the consensus builds, stocks will fly off shelves. That’s what happens every single time. And, 2020 will not be very different. If China, the epicentre of COVID-19, is recovering from the deadly disease, will India be far from it? End of the day, India has some stellar success in arresting earlier viral epidemics like smallpox and Polio, and India has shown the way to many other countries. We are not saying this. WHO says. Think about it and calm down.


Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at kumarsroy@rupeeiq.com.

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