In the last one month amid coronavirus pandemic, we have seen a large fall in the equity markets around the world.
There is a famous quote by Warren Buffet which suits the current situation of markets that -- "Be fearful when others are greedy, and be greedy when others are fearful". In the last one month amid coronavirus pandemic, we have seen a large fall in the equity markets around the world. Global markets including the domestic markets are in a stage of unpredictable future at present due to corona issue. If we look back into the history of equity markets then in early 2001 there was a dramatic global markets fall. The second was in the year 2008, when there was a global financial crisis and markets crashed. And now COVID-19 pandemic fear has disappointed all hopes of equity markets by declining continuously with double-digit fall.
Traders are at somewhat making money by 1 or 2 days target but for the investors this is a time to worry and some are concerned to lighten up their portfolio by selling the low valued stocks. According to Aasif Iqbal, Head Research - Escort Financials - "Markets will remain volatile. We expect more pain to come in the market. Cherry-picking could be done in stocks like Godrej properties, Sumitomo Chemical, BASF, Apollo Hospitals, Lal Path lab, Sanofi, Abott India, Lupin. Some MNC stocks like 3m India, Nestle India. good dividend yield stocks like Nalco is good to buy." For long term investor this is good time to buy quality stocks at reasonable price
Many market experts say that like many other crisis this too will pass and come to an end, but most important for the investors to keep in mind post the ongoing impact in the markets. They should maintain asset allocation discipline to avoid any heavy loss. But what actually investors should do in the current coronavirus situation? Should they lighten their portfolio or buy more stocks at such low levels? Or they should wait for some more correction to buy good blue chip companies at more low valuations? Well read out our piece on markets with the help of experts views.
What investors should keep in mind?
- Volatility is a part of share markets. Economy downfall, single-digit GDP numbers, high inflation, bad IIP numbers are all waiting at our doors to knock and make the situation worse. But investors should not panic. Keep calm and take the decision one by one.
- For long term investors this is a good time to buy high valuation stocks at low levels. But they should follow some criteria. According to the Senior Market Analyst - Rajat K Bose - "People should follow some criteria before buying any stocks. One is the stock should be at Zero Debt. Second, it has to be high-profit margin stock. Third, the company should have all the inherent capacity to face the bottom and then give a big surge. Fundamentally strong stocks are what people should look after at current situation."
- Financial markets are facing one of the worst crises since 1929, as many top economists downgraded their forecasts to point towards an impending global recession. In this backdrop, Moody’s Investors Service sharply cut India’s growth forecast for calendar 2020 to 2.5% from 5.3% estimated barely 10 days ago after the government ordered a nationwide lockdown to curb the spread of the coronavirus.
"It becomes extremely important for the investors to re-shuffle the portfolio according to the current situation.” Says Alok Agarwala - Head Research & Advisory, Bajaj Capital.
- Equity investors can turn their portfolio allocation towards large cap and multi cap stocks.
- Sector leaders with relatively stronger balance sheets, higher earnings visibility, strong cash flows, and management with a good track record should be preferred.
- Due to the sharp fall in the equity market valuation has become attractive as at 1.9x, the Nifty 12-month forward P/B is also well below the historical average of 2.6x (assuming a 10% cut in our FY21 Nifty earnings estimates to account for the disruption due to the global pandemic) and Nifty 12-month trailing P/E of 16.2x at a 12% discount to its Long Term average of 18.5x and at levels last seen in Apr’14. Valuations are very cheap at present for investors.
- Investors who have long term investment horizon can think of increasing exposure in equity.
- In the bond space, it would be advisable to have exposure in Corporate Bond funds / Banking & PSU Debt Fund which are comparatively safer as challenges to the economy is expected to increase only in near future.
"Corporate bond funds are mandated to invest 80% of their portfolio in instruments with highest rated paper and Banking & PSU Fund typically invests into paper issued by PSU which have sovereign guarantee or paper issued by Banks which are relatively safer. At present most of the corporate bond fund/ Banking & PSU Debt Funds are offering YTM in the range of 6.75% -7.50% which is lucrative one in the low interest rate environment" says Agarwala
- One should diversify the portfolio. So, it would also be advisable to have 10-15% of portfolio’s allocation in the gold as an asset class. Gold is negatively correlated to equities. It performs exceptionally well during stock market crashes.
- This is the prudent time to increase exposure inequity in a staggered manner. Empirical evidence testifies to the fact that investing during market crashes (even if you can’t catch the elusive bottom), can generate super-normal returns over the long term.
- One should use the current correction to increase their SIPs, MF equity, and asset allocation kind of products in their portfolio.
- There is also a logic that till the time investor will sell their equity shares and money gets credited to their account, almost three days they waste. Till then markets changes a lot due to volatility. So, if you have a target for long term, then stay invested and don’t look your portfolio for any changes. Give some time.
"Considering the sharp equity market correction, the investors should rebalance their equity exposure by increasing allocation. Example: If an investor had a 70:30 Equity, Debt Allocation which after the correction has become 50:50, clients should rebalance it back to 70:30, based on their risk profile. We would recommend investors to look at equities and allocate capital which is not required for next 3 years. Further he should front load next 12 months savings now." Neelesh Suarana, CIO-Mirae Asset Mutual Fund
- US equities too are showing a reduced correlation between the stock price decline and the heightening of COVID-19 positive cases. This indicates that sanity is slowly prevailing and markets have assumed that it will take a while before the COVID-19 cases peak driving markets into a wait and watch mode.
- In India, nearly 40% of the economy from the supply side and closer to 90% of the economy from the demand side would get affected by it and would lead to a potential of a 100 bps slowdown in GDP growth. This, along with the material change in CPI inflation outlook on the back of crash in oil and food prices, has increased the policy space for rate cuts by RBI. This will impact the banking and financial sector badly. So avoid banking stocks for now.
- Buy fundamentally strong stocks at low levels or we can say ‘buy the dips’.
- One should do 20%-30% stocks allocation for long term objective.
Some stocks by the experts’ choice - one can buy/sell/hold?
- Pharma and healthcare stocks will definitely get some benefit after the COVID-19 relief after things will get normal. So one can buy stocks like Dr Reddy, Abott India, Lal Path labs, Cadila, Biocon, Lupin for long term.
- Healthcare will get a boost by the Government in the future as well.
- One can buy large cap stocks like HUL, ITC, Bajaj Auto, Castrol, L&T and good dividend yield stocks like Nestle for long term horizon. Buy as an investment point of view.
- Sell those stocks which are giving you no profit from the time you added the stocks in your portfolio. Sell them as soon as possible.
- Sell low margin profit stocks. Avoid FMCG, metal sector.
Sahil Arora - Director & Head of Investments, Paisabazaar.com. "Given the steep correction of over 30% in equity market indices since their January peaks, quality stocks are available at fairly attractive valuations. Hence, those with a long term investment horizon should implement their asset allocation strategy to restore their original asset mix”
- One should redeem some of their fixed income investments to make fresh lumpsum investments in equity funds or top up their existing equity investments. Doing so would allow them to buy more units at lower NAVs and thereby, reduce their average investment cost. This would help them in creating bigger corpus when the market recovers, and thereby help them to reach their financial goals sooner.
- Avoid Banking stocks, NBFCs, financial sector stocks. According to the market experts’ in the financial stocks worst is yet to come. But due to profit margin one can relook at Axis Bank to add in the portfolio for long term.
- One can buy blue chip companies like TCS, Infosys, RIL at low levels
- Invest systematically and allocate good stocks
- If you are invested in equity mutual funds then don’t just redeem all your money. Stay invested in good SIPs with long term view. Asset allocation is important. Don’t put lumpsum money
“Even though market has come down, bottom has not yet come and we may see NIFTY to touch 6000-6500 levels”-says Bose. So, don’t just panic and sell in-order to have cash. Stay invested in good fundamentally strong stocks for long term. If your objective is to earn money after 5 years then forget about the current portfolio. One should partly buy good stocks at low levels and add as a SIP on their portfolio. Last but not the least invest in a staggered manner and put some liquidity for emergency during such volatile time. Also, don’t forget to take the advise from your portfolio manager or financial expert before doing any changes to your portfolio.
Disclaimer: All stocks mentioned above are given by market experts and company has no personal holding in any of the stocks mentioned above.
ALSO READ | PepsiCo India commits 25,000 testing kits, over 50 lakh meals
ALSO READ | COVID-19 impact: Banks to witness spike in credit costs, non-performing assets in 2020
