Hello Readers!

You must have come around the news of a fall in the GDP data for April-June Quarter 2020, this time GDP has shown a 23.9% drop compared to a year ago. It has become one of the major concerns of market experts and investors. As per the data, almost every sector except agriculture has shown contraction like never before.

The year already is full of unhappy events, from its start, now after these two consecutive periods of contractions seen in the GDP, is considered as the alarm for the beginning of the recession.

Is This Fall In GDP Is That Surprising? 

The economy of India was badly hit only after the unprecedented lockdown due to the COVID-19 pandemic, which was noticed by every people without the help of any economist or panel of data collectors. Covid-19 pandemic and unprecedented lockdown equally hit businesses across the length and breadth of the country. The demand for most of the products and services reduced to its all-time low.

Not only India, but the economy of most of the countries all over the world have been hard hit. The size of the Indian economy and the associated variables means that we may be hit more than others. Basically, a fall in GDP was already expected, but this much high fall was surprising.

What Do Professionals Say? 

Well, as per market experts and professionals, the correction seen in the Equity market in July was perhaps pointing towards the fall in GDP, to a greater or lesser extent. However, the number that came out this month confirmed it and it is surprising because the history of the Indian Market had never experienced this much fall in GDP.

These are unprecedented times and no chart will tell you how things pan out from here. Market performance at the starting of the month of September also reflected uncertainty as they lost their enthusiasm after the data of GDP fall became exclusive.

What To Do As An Investor?  

Taking into consideration the recent fall in GDP, you might have questions in your mind- what to do with our investments? To answer your question and solve your query, we asked many in-house experts, and their only simple advice was “Stay invested and continue investing”, well this was not much surprising.

Investment in Equity mutual funds is subjected to long-term, which faces many short-term hiccups with some regularity. This is also why investors who have been through an economic crisis or two are believers in asset allocation.

Those investors who have a good corpus in their emergency fund or adequate allocation (perhaps 2-3 years of their earnings worth) in fixed income-based instruments, would hardly be affected due to this fall in GDP, however, they might be pissed because of no investment in Equity funds.

Right asset allocation protects an investor’s investment from the volatilities in the market and economy. India is a resilient nation as well as a resilient economy and will recover sooner rather than later. Historical records of crises tell us that economies have recovered from hard crises like wars and epidemics. Even the economy will soon recover from this high fall in GDP. So basically, despite big numbers seen in the fall of GDP, long-term investors who have the right asset allocation in place, should stay invested. In this way, they would be better served by their investments.

Even if we see further correction in the market, stopping your investment with a long-term horizon (say in decades), would not be taken as a sensible decision. However, if you have investments with less than 5 years horizon you should anyway not be exposed to equity.

Things To Keep In Mind

Here at this scenario of the market, it is advisable to have a good emergency fund and adequate allocation to fixed income, this will help you protect your near future from the market fiasco.

The long term future is still linked to the growth of India’s companies and they have a history of surviving and soon thriving. So, for your long term goals like peaceful retirement stay invested in Equity funds.

Getting worried after the recent GDP and market fiascos are natural but getting forced by these and taking bad decisions for your investment is harmful to your goals. Stay invested and stick to the right asset allocation strategy.

For any kind of query, you can 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 of future returns).