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Last Updated : Apr 07, 2020 10:30 AM IST | Source: Moneycontrol.com

Every crisis is an opportunity! Utilise current scenario to re-organise portfolio

Individual investors should remember that every crisis is an opportunity. The present situation is no different, should you choose to wisely seize it and use it to your advantage.

Moneycontrol Contributor @moneycontrolcom

A few days ago, history repeated itself for Arjun. It was the day that benchmark indices recorded their single-biggest fall, just as the World Health Organization (WHO), declared COVID-19 a global pandemic.

Gains made painstakingly over the years were wiped clean within seconds. The 45-year veteran investor from Mumbai said it felt similar to 2008, when the news of an impending global financial crisis, made the rounds.

Like many other worried investors who lost their hard-earned money in the market tumble of 2008, Arjun was ready to hurriedly cut his losses and exit the capital markets, had it not been for his friend and financial advisor, Krishna.

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Based on the sound advice given by Krishna, Arjun decided to make opportune use of the global crisis and added quality stocks to his equity portfolio at attractive valuations.

This helped him diversify his holdings further and enhanced his investments manifold, in the long-term. And just as he recalled the 2008 crisis, Arjun also recalled Krishna’s valuable advice and sought to do something similar now when markets in India and across the globe, have corrected stocks to extremely attractive valuations.

At a time when Morgan Stanley has warned of a global recession — with global rating agencies slashing their FY21 GDP forecast for India — here’s how you, as an investor, can use this volatility to take stock of your portfolio and reorganise it.

Analyse your financial standing and risk appetite:

Portfolio re-organising is a task that must be done with due diligence. Before getting started, analyse your financial standing and reflect on one of the core tenets of investing – your risk appetite.

With no expert view that can precisely predict the bottom, it is up to you to gauge your risk appetite accurately.

For instance, if you are in your late 30s with a family and liabilities to shoulder, calculate how much money you can redirect from long-term goals such as retirement to maintain current liquidity.

Similarly, if you are in your early 20s and have a high tolerance to risk, be more moderate in your expectations.

Remain invested in good quality stocks:

Crises like these, in my opinion, strongly test the true character of investors. It separates the veterans of volatility from the amateurs seeking to experiment.

If you have consistently invested in fundamentally-sound stocks, make sure to remain invested. Indian markets have overcome such crises in the past and have rewarded those who had the patience to wait out the storm.

At the same time, the current volatility offers a perfect opportunity to scout quality stocks at attractive valuations to add to your portfolio for meaningful gains in the long run.

Several high-value stocks would be trading at lower valuations and you should lap them up as soon as you can. Also, if you have invested in mutual funds through Systematic Investment Plans (SIPs), do not discontinue them, as that would be a mistake.

With dropping NAVs, your SIPs would fetch more units now, averaging out the cost of buying. Staying invested now would yield higher dividends in the long run.

Provision for liquidity:

In such uncertain times, liquidity is a major concern. With a slump in economic activities, most businesses have come to a standstill and companies are staring at losses.

Lay-offs can’t be ruled out. This brings me to another essential aspect of wealth management and asset allocation — building an emergency corpus.

Having an emergency corpus ensures that you can bank on it to take care of your daily needs and liabilities, without dipping into your savings or compromising on your earmarked capital for various investment milestones. Check your portfolio and make adequate provisions for this corpus, if not done so already.

Consider liquid funds that invest in securities with short-term maturities like 91 days that offer higher returns as compared to a savings account. Redemption is quick and easy and is processed within one (T+1) working day.

In conclusion:

Amid all the gloom and doom, the Reserve Bank of India (RBI) has made several big-bang announcements to infuse much-needed liquidity worth Rs. 1 lakh [1] crore, through long-term repo operations (LTROs).

These measures should help the Indian economy in combating adverse impacts of COVID 19, spur consumption and instil confidence amongst investors.

However, as individual investors, do remember that every crisis is an opportunity. The present situation is no different, should you choose to wisely seize it and use it to your advantage.

(The author is Head, Edelweiss Wealth Management)

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.

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First Published on Apr 7, 2020 10:27 am
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