How quickly times and sentiments change! First week of March, it all seemed normal and we were on track to achieve our best ever year economy-wise with a double digit GDP growth rate. With the tsunami of the COVID-19 second wave coming, all that seems like a distant memory now.
The second wave in effect, has been quite unexpected and also quite strong. We have gone from around 16,000 cases to 1,00,000 plus cases in less than a month. We went to 2,00,000 cases in nearly 10 days, 3,00,000 in less than a week, and then 4,00,000 in nearly 10 days. This truly has not been a wave, but a tsunami.
This has also reflected in market behaviour with indices correcting around 5.8 percent since the beginning of March 2021. While it is a matter of concern, what is even more worrying is the volatility in the markets. The index has been a Yo-Yo ever since the second wave broke.
What becomes even more concerning is weakness in some of the top-quality stocks, which have had very strong earnings growth in Q4FY21. Some of the examples that come to my mind are TCS, HDFC Bank, ICICI bank amongst others.
The key question then is: what should an investor do in these unexpectedly tough times? Here are some tips to make hay, even when the sun does not shine:
A) Be realistic: The first step to attaining peace of mind and securing your portfolios is to realize and read the situation correctly. Some things have changed and the quicker we accept them, the better it is for us. 1) This second wave, and the ensuing restrictions are here to stay for a couple of months, at least. 2) There is going to Macro-economic impact of the same and hence, double digit growth for FY22, may not happen. 3) There will be an impact on earnings growth too and 25-30% Nifty earnings growth may taper down substantially.
The Idea is to reconcile to the new reality, which would enable us to formulate our investment strategy accordingly. The quicker we do this, the better it is.
B) Don’t Panic: Sure enough when Macro-economic conditions are tough and markets are resultantly volatile, your investment values may fluctuate too. Which also means that at times there may be a correction even in some high value stocks including quality ones. The important lesson is to be patient, if the business you have invested in is in good shape, then do not panic. Stocks that have gone down today will regain their fundamental value. Rash decisions are often only meant to be lived with and regretted later on. So, no matter what happens, Never Panic.
C) Think long term: Remember the saying: Tough time never lasts, Tough people always do. Similarly, whenever a calamity has struck, financial or otherwise, in the moment it has always seemed like the world is literally coming to an end. It, however, is always better than what we think. If the financial world can come out of the 2008 crisis, then nothing is too big to be resolved. Economic impact-wise, 2020 was much worse than what 2021 is going to be.
So, Think long term and prepare your portfolio accordingly. Think of businesses that will survive and thrive, companies that will gain leadership and industries that will see growth picking up rather than slowing down. Essentially, think of Coffee Can companies, which have a Good & Clean track record. These will yield great returns in the long term.
D) Differentiate between economic and human impact: The pandemic situation in our country is bad and human life has been suffering a lot. However, as an investor we need to keep our emotions away when aligning portfolios. Often, the economic impact is not as bad as the human impact, which we believe is also the case this time. The sooner we learn this, the better it is.
E) Quality, Quality, Quality: Last, but never the least, invest in high quality stocks. There is no substitute for that. Companies that have leadership in a growing industry with a clean management and light balance sheet. What do you do when these stocks witness correction? Invest more, with every meaningful correction. Focus on building a portfolio and creating long term wealth.
Follow these simple rules for long-term wealth creation.
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.