Did the 900-drop in Nifty, or the near 3,000-point drop in the S&P BSE Sensex for the week ended February 28 scare you from investing in equity markets? Well, you are not alone if you are thinking of booking profits at current levels.
The market is going through a turbulent time as coronavirus is slowly turning into a global epidemic which has triggered a risk-off sentiment.
There is mayhem in stock markets across the world. Indian indices, too, have shed nearly 10% in just 10 sessions. Nifty50 has lost over 1,000 points in the same period.
On the global front, world share markets witnessed their worst week since the global financial crisis, wiping out about $6 trillion, a Reuters report showed.
Frequently Asked Questions
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There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.
Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.
Bond markets are certainly screaming warnings of recession, with the US and German 10-year yields falling 20 basis points on the week.
There is gloom and doom in the market, and there is a possibility that the selling pressure will continue for some more time.
But, these Black Swan events have happened in the past as well. One thing which stands out is the fact that markets have bounced back aggressively once the overhang is over which has created opportunities for long-term wealth creation.
“The outbreaks of SARS, swine flu, Ebola and others saw an initial sell-off in the markets, but they quickly bounced back and offset the losses. With the concerned authorities working on quarantine measures, news reports suggest the epidemic could plateau in the next few weeks,” Jashan Arora, Director Master Capital Services Ltd.
“Global equities tend to rebound after a temporary decline. Six months after the outbreak of past epidemics, markets were up again as per the data by Bloomberg on the Global market cap change (%) in 1 month and 6months after the epidemic,” he said.
Putting money in markets at current levels would be very difficult because no one is aware where the bottom is? Hence, quality stocks that have come off from high should ideally be considered for investment.
“By the time the clarity comes, the stock market has grown. This is an event not long-lasting. This will definitely push the market a little lower in the short term but it will be a buying opportunity for the long term,” Shrikant Chavan, Senior Vice President, Equity Technical Research, Kotak Securities told Moneycontrol.
“Our advice is to buy large-cap stocks in the current ongoing correction. And buy mid-cap stocks if clarity emerges,” he said.
Statistically, the Nifty50 has corrected over 6 percent from highs of 12430 in January 2020 till date. However, given the massive one-way rally from October 2019, a deeper correction was expected, suggest experts.
“The market’s knee-jerk reaction is on expected lines given the fact that the global growth is at risk because of the coronavirus issue. One should note that China contributes about 16 percent of global GDP and the last time when we had the instance of SAARS virus it led to a decline of 50 bps in the Chinese GDP,” Pankaj Pandey, Head – Research, ICICI direct told Moneycontrol.
“Both trades, as well as discretionary spends, are likely to take a hit in the near term as public movement will be restricted given the fear over the same. However, we see it as buying opportunities for the investors who should utilise the declines to lap up the good businesses,” he said.
Indian market got off to a shaky start after the Budget 2020 failed to lift investor sentiment, and with the outbreak of Coronavirus, bears have complete dominance over D-Street now.
Production hit in China has had a cascading impact on global economic growth if it stays a little longer than what is perceived. The government is also watching the situation closely. Last week, Finance minister Nirmala Sitharaman said that the government will take steps to ease any supply constraints that India Inc. may face.
India's economic growth slowed to 4.7 percent in October-December 2019, according to official data released on Friday which was slightly better than estimates. Finance Minister Nirmala Sitharaman on Friday said the "steadiness" in the economy is a good sign.
“On the impact of coronavirus on the economy, she said there is no need to immediately press the "panic button", but admitted that it may get challenging if the issues prolong for another two or three weeks, citing her conversations with the industry players over the last few days,” said a report.
“For long term investors, timing does not play a very large role. Even if India's long term growth reduces to 6%, that is still significant in the context of the global growth of 1-2%,” Sameer Kaul, MD & CEO, TrustPlutus told Moneycontrol.
“India has a large consumer base and several progressive businesses in sectors like financials, healthcare, and technology which are lucrative for long term investing. Coronavirus may have an adverse short term impact but is unlikely to have any meaningful long term impact. Businesses should start functioning as normal in 1-2 quarters,” he said.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.