Hello Readers!
Till now we all have been aware of the fastest spreading respiratory illness, coronavirus, all over the world, that was first recognized in Wuhan, China. It is spreading globally, and many cases of coronavirus have been found in the US, Japan, and some cases in Kerala, India too.
The reports say, until now the total cases identified across the world, are approx. 81,000 and total deaths recorded are more than 2,750.
Coronavirus is imparting a great effect on people, mentally, people fear it and is taking many precautions to prevent it, at the same time, coronavirus is also imparting its effect on the global market as well as India Market. As the disease, got spread out of China, in many countries like Iran, South Korea, Italy, including, an outbreak or say an economic slowdown has been observed it the market.
Now Indian investors are worried that this could lead to a prolonged economic slowdown in Indian Market.
Looking at the Past….
This is not the first case where the appearance and spread of a deadly disease has affected the market performance, but before also there have been many diseases like Zika Virus, Rubella virus, and more which at their time has affected the market and led to economic slowdown but the benefit was, these slowdowns were always for short-term and temporary.
Unfortunately, with Coronavirus, we have many uncertainties like how quickly a vaccine can be created, where will the virus spread next, and most importantly, how quickly the virus can be contained. All these certainties have made it difficult to predict the extent to which coronavirus can spread and the consequences it can have on the market.
Here I am depicting a table that is showing, how the Indian economy has reacted with the past epidemic outbreaks:
In the case of coronavirus, it has been observed that in the last three months, Indian Equity markets have only seen small declines if any, and so the Equity mutual funds have shown a bit of slowdown in performance.
How should we approach this situation?
In this situation, to decide with our Equity mutual fund investment, we have two facts to consider.
- History shows that epidemics of the past had a very minimal and temporary short-term impact
- The possibility of what if this time it’s different and more severe – leading to a sharp market decline
If you haven’t considered any of the above facts, then being honest with you, I would like to say, we can’t precisely predict the future, neither can anyone else.
So How Do We Prepare?
Okay so let5 us discuss, how we can prepare our self, to cater this slowdown with each of the facts mentioned above:
Fact number 1: History Repeats… Markets have a small fall but recover quickly
Well, this has been a fact, that with every epidemic outbreak, markets have shown economic slowdown, but they have recovered themselves quickly, so consider this fact, an investment decision may be like:
- If an investor’s investment portfolio is well-diversified, aligned with their risk tolerance and in line with their long-term plan – NO ACTION is required
- They can continue to remain intact with their long term intended allocation in mutual funds.
Fact number 2: This time it’s different, the coronavirus impact is significant and continuously increasing and it impacts the Indian economy leading to a steep market decline.
Well, as we cannot predict, how the coronavirus will take a turn in the future, so we cannot ignore this fact.
It is impossible to predict, whether a 10% fall is a precursor to a prolonged steep fall or is just a normal temporary decline that is expected to recover immediately, so it is necessary to acknowledge this, even if there is a 10% fall in the market.
It’s always better to be prepared for the worst, a strategic plan will help us to covert the economic slowdown, into an opportunity. Have a look at the plan depicted below, it might help you decide regarding your investment in mutual funds:
- If there is a 10% fall in the market – No action
- If there is a 20% fall in the market – Move 20% of your investment from Equity mutual fund to Debt fund.
- If there is a 30% fall in the market – Move 30% of your investment from Equity mutual fund to Debt fund.
- If there is a 40% fall in the market – Move 40% of your investment from Equity mutual fund to Debt fund.
NOTE: If in case of extreme valuations for the market, this plan might need some adjustments. But at the current juncture, the valuations are close to long term averages and hence our plan holds good.
The above strategic plan prepares you to take advantage of the market without the need to predict what will be the next move of Coronavirus.
Conclusion…
Although India has not observed so many cases of coronavirus, it is still countable on our finger, but as discussed it is impossible to predict what will be the next play of coronavirus and how it will impact the market condition. There is one thing clear and that is, in the past many epidemics have marked their temporary effect on the market performance, and thus it is obvious that Coronavirus, will also do the same, and will mark its temporary effect on the market.
However, if this one turns out to be different and has a significant negative impact, we are ready with our ‘what-if-things-go-wrong’ plan.
The best thing we can do in this situation is to remember, Equity mutual funds, in the long run, have always given their best and worked positively for their investors. So basically, we would suggest staying invested for the long run, this big fat problem will pass away.
From our side, as always, while we won’t be able to predict, we will continue to ‘Prepare’ our investors, come what may!
For more details, it would be better if you meet a financial planner before taking any step towards your investment.
You can also contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).