After spending several days in pessimism, fear, and uncertainty, many investors finally breathed easy. Having seen their gains evaporate given the ongoing coronavirus pandemic, the rally of domestic equity indices, before markets closed for an extended holiday in the last week of April, rejuvenated investor confidence.
Coming on the back of encouraging results from coronavirus drug trials in the US and hopes of further fiscal stimulus from the Government of India, this has improved the morale and mood of the investor community.
Global developments such as the expansion of manufacturing in China and the rise of Asian stocks to a fresh seven week-high last month has added to the bullish sentiments of many domestic investors.
Also, the Indian Government’s decision to allow the resumption of activities in orange and green zones, to restart economic activity, has given a new lease of life, making markets buoyant.
As we march into the days ahead, to what is now considered to be a new normal, we need to also re-evaluate our financial plans accordingly. What we need now is a calculated and cautious approach towards our investments.
Use common sense
Post the World Health Organization (WHO) declaration of as a pandemic, markets officially entered a bear phase.
While it has gained some lost ground in the last week of April, this upward movement is orchestrated on the back of global developments, expectations of a second fiscal push by the Indian government, and easing of the lockdown, in the near future.
The results are yet to be seen and if they are not on what we expect, markets will dip again, leading to lower price levels. Thus, to say that volatility still looms large, will not be an understatement. In such a scenario, a cautious approach coupled with common sense would be the antidote required to tide through future uncertainty.
Once the lockdown is completely lifted, markets will take note of ground reality, as after effects start to emerge. These events have the potential to continue the bearish phase of the markets and also possibly, trigger a second round of market fall. Thus, it’s important for investors, to not get carried away by the recent turn of events.
Don’t bet on stocks from a short-term perspective
The ongoing market turmoil has made certain stocks in specific sectors quite lucrative and enticing for investors. For example, pharma companies have emerged as a safe bet in these pressing times, with valuations at multi-year lows.
The Pharma Index has witnessed a significant jump and there’s a clear trend that shows an affinity for pharma stocks, among investors. I have always believed that you must invest in any stock with a long-term perspective and diversify your holdings.
Diversification avoids concentration of risk and shores up your portfolio. Thus, if one stock or asset class nosedives and fails to live up to its expectations, you are still safe.
Also, the performance of sectoral stocks is cyclical in nature and depends on the performance of that specific sector.
Note that while the pharma sector looks lucrative for now, the same may not be sustained in the long run. Therefore, adopt a long-term approach when banking on a particular stock.
Beef up your savings
The coronavirus pandemic has not only put brakes on economic activity but has also forced companies to cut costs through salary cuts and layoffs. An online survey published by a media house found 15 percent of the respondents set to lose their jobs, while 39 percent faced salary cuts.
Also, bagging a job that aligns with your requirements, may just be an elusive dream, in these tough times.
Therefore, analyse your position and the developments in your company and sector. In the face of pay cuts, trim your expenses and spend exclusively on needs.
Beef up your savings until normalcy restores. On the other hand, if you feel you might lose your job, take a note of your emergency corpus.
In case you don’t have one, start building one by parking money in liquid funds that invest in high-quality rated papers. Instead of chasing returns, focus on capital safety, and build a corpus equivalent to six to eight months of expenses.
The final word
The easing of the lockdown should not be construed as a return to absolute normalcy. 2020 and subsequent years, will be a period of recovery.
A meticulous approach, coupled with discipline and patience, can help you make prudent financial decisions. This will also allow you to be on a solid footing, once the market stabilises and economy kicks-off.
(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.