Moneycontrol
Get App
Last Updated : Mar 22, 2020 07:52 AM IST | Source: Moneycontrol.com

Investing in the time of coronavirus: How to play in such markets?

Neelesh Surana of Mirae Asset Investment Managers said discipline of asset allocation should be maintained given that coronavirus is an evolving situation.


The novel coronavirus, or COVID-19, pandemic has sickened more than 2,10,300 people in at least 145 countries and over 9,000 people have died, more than half of them outside China, where the epidemic first began in the city of Wuhan.

Media reports are suggesting there are 290 active reported cases of the novel coronavirus in India right now. Prime Minister Narendra Modi, during his address to the nation, appealed citizens to show 'resolve and patience' to tide over the crisis. He has called for a 'Janata curfew' on March 22 to contain the spread of coronavirus.

Nobody knows when the world will completely emerge from this pandemic. While it is true that there is light at the end of every tunnel, it has to be realised that we are currently going through the tunnel and the end is yet to come. Staying safe and following the guidelines of the government is the best we can do at this juncture.

Close

Market crashes

Despite the strong gains of March 20, benchmarks Sensex and Nifty are down nearly 27 percent since February 1, 2020 as investor sentiment is broken due to fears that the economic fallout of coronavirus will be tough to deal with.

"The outbreak of the corona virus will definitely have an overall impact on global as well as Indian GDP growth in the interim. Both trade as well as discretionary spends (travel, leisure etc.) are likely to take a hit in near-term as public movement will be restricted given the fear over the same. The recent market correction is the result of the same," said ICICI Securities in a report on March 20.

Nifty50 posted the biggest one-week loss after 2008 selling climax and is now trading well below the rising channel on monthly charts drawn from 2008 lows.

Experts highlight that the drawdown till now is less than that of what occurred in 2008 which was more than 55 percent in Nifty but the speed has been much faster comparatively and the damage has occurred on a larger structure.

Some recovery in the sight

After dark nights there are dawns. Friday's gain may be short-lived but it hinted at the fact that the market will start moving up as soon as the cases of coronavirus begin to subside and the pandemic comes under control.

India VIX has also cooled down indicating that the fear is receding and markets are expected to stabilize slowly.

The recent announcement of a relief package of 1.7 trillion euros by the European Union, US’ package of $1 trillion along with Fed slashing interest rates next to zero are all a part of governments' efforts to curtail the economic impact of COVID-19 health concerns.

"India too shall follow soon. It is expected that Mr. Market will take cognizance of these measures and the moment health concerns subside, stability would come and markets will start to rally," said Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote.

"Nifty index has moved too far too fast and became deep oversold; hence we might witness bounces followed by selling emerging on the higher levels. Traders are advised to reduce their short positions and buy on dips in cash market rather than taking leveraged positions. Stops are weekly lows which should be maintained for long positions," he said.

How to invest?

Market experts say that one should look at quality blue-chip with long-term view as they are available at cheap valuations.

"We have a lot of blue-chip companies trading at huge discounts and it makes sense to start accumulating them in this market," said Vinod Nair, Head of Research at Geojit Financial Services.

Historically, it has been seen that market recovery after such corrections is usually sharp and precedes the economic growth rebound.

"We see the current correction as a buying opportunities for the investors who should utilise the declines to lap up the good businesses which have comfortable leverage, strong return ratios and enjoy leadership position. The allocation, however, can either be made in staggered or in lump sum, depending on investor’s risk appetite," said brokerage firm ICICI Securities.

The brokerages said since equity markets are inherently volatile, doing investment through a systematic investment plan (SIP) is the best investment strategy.

"For lump sum investment, a basic thing one needs to ensure is that investment is made at the lower end of the market cycle. Conversely, lump sum investments should be done when historical returns are negative or lower than long term average," ICICI Securities said.

The brokerage added that quality companies in both large-caps and mid, small-caps have done well in 2019 and it expects this trend to continue even in 2020.

A stock specific approach in both large-caps and mid-caps is likely to do well in this market. However, mid-cap and small-cap funds offer a better investment proposition as a stock specific approach may do well in the broader markets.

"Lumpsum investment in mid-cap, small-cap funds at current levels may be considered. However, the core portfolio should always comprise multicap oriented funds with accumulation being done through an SIP approach," ICICI Securities said.

Image12132020

Neelesh Surana, CIO, Mirae Asset Investment Managers India Pvt. Ltd, told Moneycontrol that the discipline of asset allocation should be maintained given that coronavirus is an evolving situation.

"We would recommend investors look at equities and allocate capital which is not required for the next 3 years. Existing investors should not look at point-to-point returns – most of the losses are quotation and will be recouped over time," he said.

"For large allocations, we would recommend investing about 50 percent lumpsum, and remaining can be spread over the next few weeks. For others, SIPS are the most efficient way of capturing the volatility/downside," he added.

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.

Moneycontrol Ready Reckoner
Now that payment deadlines have been relaxed due to COVID-19, the Moneycontrol Ready Reckoner will help keep your date with insurance premiums, tax-saving investments and EMIs, among others.

First Published on Mar 22, 2020 07:52 am
Sections
Follow us on