The coronavirus-triggered fall has not only led to a sharp selloff in equity markets but also caused a major shift in the fixed-income space as well.
Post-COVID-19, while investing in stocks or fixed-income instruments, the focus will largely be on “safety of capital”, experts say.
Investors will be better off with minimum returns than trying to maximise profits, a scenario which could become a reality, experts told Moneycontrol.
“This crisis has exposed us to risks that we have been ignoring for a long time. In that sense it will definitely change our behaviour towards consumption and saving. People would probably look to have a larger safety net before spending on consumption,” Pankaj Pathak, Fund Manager, Fixed Income, Quantum Mutual Fund, told Moneycontrol.
IL&FS crisis followed by DHFL and then Franklin Templeton resulted in a loss of confidence in the debt market space.
In equity markets, sharp cuts were seen across largecap, midcap as well as smallcap spaces since the beginning of March.
The Nifty bounced back sharply after falling nearly 40 percent from record highs of January to hit a swing low around 7,500 levels in March but many individual stocks, especially in the small and midcaps space, were down more than 30 percent in the same period.
The serious wealth destruction seen in the equity and debt markets is likely to change the behaviour of investors.
Maximising returns may no longer be the mantra while investing and the focus will more be on protecting capital with reasonable returns whether in equity or debt markets, experts say.
“Similarly, with respect to investments, the focus might shift to have a truly diversified portfolio than just trying to maximise returns,” Pathak said.
The fixed-income market has been under stress ever since the IL&FS crisis in September 2018, and then DHFL. With recent economic lockdown, the stress in debt markets reached unusual levels, which led to a fall in liquidity.
The Reserve Bank of India (RBI) has come out twice in a few weeks to provide liquidity and support to the economy. This had reduced some bit of stress in the debt markets, but with winding up of six of the Franklin Templeton schemes created panic among debt investors.
Equity and debt market could get dented due to the lockdown in India, which has led to relentless selling by foreign investors to raise cash.
Back home, earnings will take a hit for India Inc. as economic activity is virtually at standstill barring few industries.
“We expect a massive shift in investor preferences in terms of sectoral allocation. We do foresee a shift to more high-quality savings. In some instances, in times of such crisis like the one we have, a rebound to consumption can be quite dramatic. In the very short term, investors may continue to favour safer investment avenues,” Sahil Kapoor, Chief Market Strategist, Research, Edelweiss Wealth Management told Moneycontrol.
Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra AMC, said flight to quality would be the predominant theme for 2020 and maybe beyond, as world grapples with a medical emergency.
“Investments via traditional vehicles like banking products and small savings may be fixed at lower levels. Thus fixed-income offerings with high grade underlying will be one of the preferred modes of parking surpluses across various tenors,” she said.
Iyer added that liquidity will also play a paramount role in shaping such investment decisions where open-ended funds would tend to score.
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