The situation in the market is worrisome and has only multiplied with the COVID -19 virus pandemic now looming on every country around the globe. Markets in India have also been adversely affected, and the unpredictability continues. As governments and world organisations are taking stock, measures and methods to handle this outbreak, the battle seems to be long-drawn at this point.
Obviously, as a financial planner and an investment advisor, am I worried? I am questioning myself, my logic and my reasoning.I have seen some of my client's net worth being eroded by such a significant sum in such a short period. The Sensex has dropped by 30-35% since the past 20 odd days, and as an informed person, I know that large and small businesses are getting affected.
The economy has slowed down, and with this pandemic, business across industries, irrespective of their size are seeing some impact and will continue to do so for some time to come. Once things settle down, which we hope happens sooner than later, we are confident that the government will come out with some measures for the industry and people with some kind of a stimulus; the recovery will happen, it’s only a matter of time.
Markets are likely to stay volatile till the pandemic reaches a manageable level, and global community puts up a strong defence against the virus. Governments and policymakers across the world will come together with measures to help manage the slowdown and get our economies back and running. This may take time, but the outcome is inevitable.
My experience, especially during 2008 – 2009, gives me confidence that markets in India and the world will regain confidence and bounce back. Also, markets are forward-looking, and therefore, the bounce back may happen much before economic recovery.
The above market PE index clearly indicates a favourable environment for investments in equity mutual funds,
- Data from Computer Age Management Services (CAMS), over the period 15th Feb to 15th March shows a 50% jump in new mutual fund folios compared to the monthly average since the start of this year. In the first two weeks of March, the market fell by about 30% from its peak in Jan 2020, allowing investors to take advantage of lower stock prices.
- Note: CAMS is a Registrar and Transfer Agent (RTA) and services about 68% of the mutual fund market.
- We are seeing a surge both in new folios and purchase transactions since mid- February. As against a monthly average of about 6 lakh new folios, CAMS processed over 9 lakh new folios in the past five weeks. Purchase transactions are also trending higher than normal volumes.
- To be sure, a single investor can have multiple folios and the 50% jump does not mean that the number of new investors has jumped by 50%. However, in general, there is a high correlation between folios and new investors. The jump has also been accompanied by an uptick in flows. Net inflows into the open ended equity funds hit an 11 month high in the month of February at ₹10,796 crores.
- This trend looks to have continued in March. "Despite the sharp falls in the market and reduced workforce and working hours for sales teams and distributors across the industry, flows have held up. This is the first time that such a level of resilience among advisors and investors in my long years.
As a Real Financial Professional, my job is to guide our clients. Usually, that means making a financial plan (your map) and helping the client stick to it.
But sometimes we find ourselves in uncharted territory. Way off the map. That’s where we are right now.
When that happens, our job changes. It’s no longer our job to defend the map; our job is to be a guide in a changing landscape.
And that’s pretty scary.
But you know what’s even scarier than being a guide and realizing you’re off the map?
Being a client and realizing your guide is not scared.
Right now, our clients need us more than ever. And what they need from us is confidence in the face of fundamental uncertainty.
That just became your job. I would argue that it always has been.
So, I AM CONFIDENT!
My question to you is, what have I done to meet my clients with confidence?
I’ve thought about this question a lot. Not because I saw COVID-19 coming… but based upon the weighty evidence of history, if there’s one thing we can be certain of, it’s that there’s always something happening.
And what I know from a quarter-century of experience in the financial services industry is that what YOU need right now more than anything else is… confidence!
On the other side, most people think investing is, just writing a cheque when a new IPO or fund knocks the door or when someone suggested a good fund or they read about this product somewhere. This is just utilizing your resources. You are not even sure if this is a proper utilization.
Read more in my article published in February 2020 HERE
Unlike in 2008, the current market scenario is caused by a medical crisis. As on 26th March, 2020, I don't think that one can predict the extent or duration of the spread of the pandemic. No one can project when the paralysed global economy will revive. What we do know is that once curative measures are found, India will bounce back to normalcy and business will kick off as usual.
Yes, the dependency on FIIs in the fourth quarter may see a setback due to loss of optimism in the emergence of Indian markets and will have a cascading effect on the rupee. But, on the brighter side, we may have a window of opportunity to leverage the oil crisis and use the drop in oil prices to our benefit.
In addition, we have the advantage of a paralyzed Chinese market, which is beneficial for Indian competitors, especially in the unorganized market. Larger corporations across the globe, who base their manufacturing strategies solely on China, may now consider expanding operations to India, with the latest added advantage of a deep cut in corporate tax.
How previous two bear markets shaped up
The Chart below; (Courtesy TOI) indicates clearly that those who did stay invested during the bear run, did benefit subsequently. Market exhibited prolonged weakness even after 2000 bear run, but gained sharply after 2008 sell-off.
2000 : Start date: 11 Feb 2000 : End date: 18 Oct 2000 : Decline: -39.4% -No. of trading days: 171
2008: Start date: 8 Jan 2008 End date: 9 Mar 2009 Decline: -60.9% No. of trading days: 286
What’s next for my investors?
Here are a few steps:
- Make sure that your financial plan was done in sync with your goals, time horizon, risk profile. It should be frequently synchronised with your revised goals, and all decisions documented to ensure transparency and suitability to your risk profile.
- Following a Road-map: One must plan to invest. A proper financial plan, with quantified goals, a suitable assessment of the risk of the individual investing & instrument investing, with the desired asset allocation & action plan is a bare minimum requirement to invest.
- Then, comes the toughest part – implementing & reviewing the plan until the goals are met.
- Control your investment behaviour: Volatile markets usually cause chaos in the minds of investors due to their behavioural tendencies. You must keep a check on your biases so as not to let them get the better of you.
- The Upside of the downside: For my willing and dynamic investors, the volatility in markets may last for a little longer. In essence, this is an excellent opportunity to take advantage of a falling market while keeping a tight rein on your risk capacity when investing surplus income.
- Create a financial cushion: Since severe bear markets are usually accompanied by crippling economic downturns, they can wreak havoc on your finances. Retrenchments, salary cuts or delays in payout are inevitable outcomes of a sputtering economy. Be prepared for the worst. Before you think of making moves in your portfolio, arm yourself with adequate buffer. “A prolonged bear market not only drags down returns but can hurt incomes too. It is prudent to have sufficient buffer for such an eventuality. Build a contingency fund to cover at least 6 months’ expenses. This way you will not be forced to dip into your retirement savings in a cash crunch.
- Be ready to put your money to work quickly. If you have the money you can afford to invest with a long-term view, this point in the market may pose a good opportunity. Invest in tranches. Identify that part of your portfolio that can be liquidated to give you the necessary arsenal. Some of your existing debt funds can be used to provide cash flow. Consider initiating an STP from the debt fund into an equity fund over 6-12 months.
- Don’t review funds now: If you find yourself looking at your portfolio value daily, stop now. Finding your portfolio take a knock every day will lead you to question your investing choices. You will start finding fault in individual bets. Avoid reviewing your portfolio at this point so as not to form a misguided opinion. “Do not look at portfolio performance for the next few months.
- Don’t change investing strategy: Don’t try your hand at a new investing approach amid a bear market. If you are a different investor today than what you were before the bear market started, you are not doing it right. It is during a bear market that investors shift approach. Overwhelmed by panic, they are prone to abandon years of investing principles. For instance, investors following a focused strategy may suddenly start diversifying to the extreme. This fickle nature undermines long-term strategy which may come in the way of achieving longer-term goals.
- Don’t get overly defensive: After seeing relentless erosion in the market, you might want to throw in the towel and turn ultra-cautious. Do not succumb and press the panic button. Avoid rash decisions and exiting an investment mid-way. Doing so turns the whole exercise of investing futile, ending in a bad investing experience. If the market is down 25% in a month, it doesn’t mean that in four more months you will have lost everything.
- Do not withdraw from equity thinking that when the market starts to recover, you will put it back. It is very difficult for anyone to predict when the markets will recover and when it does, human psychology will prevent us from getting back in. Let all your long-term investments in your portfolio remain untouched, as the current fluctuating market changes will barely have any effect on them, in the long run.
- Some may try to reduce risk by spreading their money across multiple asset classes. This may help you temporarily arrest the downside and cushion your portfolio. But overdoing it will prevent you from gaining meaningfully when the market recovers. Markets tend to move in cycles. Bear markets follow bulls and bulls follow bears. When everyone expects the worst, that’s usually about the time markets turn around.
- Don’t do anything at all-An oft-repeated advice during a bear market is to ‘play dead’ or do nothing. Mostly, you let your investments run and don’t tinker with your portfolio. Continue with your investment process. Staying invested is the key now. The turbulence the markets are facing will eventually die down while trade and life will return to normal, and so will the economy.
- Can I predict what is going to happen, and will it be permanent in nature? When I reason with myself, I clearly understand that no one can predict how long it is going to take for the virus to get under control and life to get back to normal. But historically we have always seen after a calamity, war or incidents with such global impact, people and economies have bounced back. No country and no community have remained stagnant, and it is in human nature to overcome difficulties, innovate and progress.
- Should you be changing your investment pattern? Most of your investments in the markets, whether done directly or through mutual funds, are long term in nature. All your investments were made with a particular goal in mind. Again my reasonable self says that with such credible corporations trading at such low valuations, it is a good time to invest some more in equities. You should definitely not stop your STP/ SWP/ SIPs as I know they will be buying units at very low prices which will boost your returns when markets turn northwards.
- Should you be worried about the safety of your investments/corpus and shift to FDs?: You have your asset allocation in debt/ equity mutual funds, Bank FDs, PF, PPF etc. You have your contingency funds available in your bank savings account/ debt mutual funds. Then why should you be driven by fear and not see this as an opportunity? My point is, let me be dispassionate, as hard as it sounds, and be driven by IQ rather than EQ. The textbook “basics of investing” is to have a financial goal and an asset allocation as per your risk appetite. And this is the time to stick to the basics and have your asset allocation in place. I believe that everyone is as worried as the other person, but panicking and pulling out everything into cash may not be the wisdom that one has to show in these trying times. Redeeming funds only ensure you convert a notional loss into an actual one. Please assess your risk appetite, your goals and make decisions based on your overall asset allocation, which is already in place.
- Continue SIP: Check the following chart (Courtesy TOI/ and Source: FundsIndia Research) which clearly shows that those who continue to post the downmarket, get the maximum returns
In times of market volatility as we have always reiterated, ‘Anytime’ is a good time to invest through SIP. Therefore, stay invested. Moreover, understand the importance of asset allocation, create a right mix of equity and debt and use this as an opportunity to accumulate units at lower prices by investing consistently through SIPs.
I would also like to share a few details with you to sum up our thoughts on this crisis and what we believe investors should be doing over the next few weeks.
- Markets are likely to stay volatile till the pandemic reaches a manageable level and global community puts up a strong defence against the virus. Governments and policy makers across the world will come together with measures to help manage the slow down and get our economies back and running. This may take time but the outcome is certain.
- Our past experience, especially during 2008 – 2009, gives us confidence that markets in India and the world will regain confidence and bounce back. Also, markets are forward looking and therefore the bounce back may happen much before economic recovery.
- Investing should never be guided by specific moments; it should be a part of a process over time. If you are like most investors, chances are you have been randomly accumulating investments for your portfolio without a clearly defined purpose for each rupee invested.
- In the absence of a plan, there is a higher risk that you will make rash decisions about your portfolio during a market upheaval. You may end up liquidating long-term investments that would jeopardise goals far on the horizon.
- If you don’t have a long-term financial plan, creating one—and sticking to it—is the best action you could take at this time. This is a ripe time to have your health check-up done and get clarity on your financial goals.It’s at such a time that an advisor’s role becomes critical. A good advisor holds you through this process and guides you to make the right decisions.
- The advisor ensures that asset allocation is followed and explains to you the benefits of the same. It would be very wise to work with a trusted advisor like our firm, especially in these testing times. Consider engaging the services of a good adviser for this purpose. To make it simpler, and help everyone, I am currently offering a consultation. CHECK HERE.
While we await the end of the pandemic, the restoration of some normalcy to life and the resurrection of trade, let us hope for the best and at the earliest.
Stay at home, Stay Safe.
With warm regards-
Author | Consultant | Speaker | Coach| Trainer | Financial Freedom Specialist | CERTIFIED FINANCIAL PLANNER |
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