These days media seem completely virus infected and if I take the liberty of saying, presenting a negative and gloomy view. No doubt the uncertainties around COVID 19 continue to cause anxiety and its probable impact on economies around the world is still quite unknown and is a topic of speculation.

Times like these require rationality to kick in, one needs to sit back and analyse data points and look back into history to analyse such situations and project a future.

Markets have reacted sharply to the spread of virus and more on account to suspension of economic activities across globe. Absence of a cure and nature of its spread has compelled social distancing as only prevention, leading to shut down of businesses, at least temporarily. Significant fall in equities, across the board, trigger some common thoughts:
• Hope that times will be better once there is a cure and investments will recover
• Sell out and book losses
• Do nothing
A look at the past will tell us that markets do go down but come back again, nothing lasts for ever, so this too shall pass and we will be back to good times again. Being an optimist, I strongly believe that we will soon be out of this, how soon, is difficult to predict at this stage.

If above view as some sense, selling out will be a mistake, since benefits of recoveries will be lost, unless one is a savvy investor or has access to a professional advisor to help rejig the portfolio. These are opportunities to rework portfolios for alignment to the market realities and bring focus on sectors and stocks that will lead the recoveries. While this is a good choice but to just stay invested is also not a bad option, exit certainly is not recommended.

One has to always remember, predicting a perfect bottom or perfect top in a market is impossible. Rule based asset allocation and professional advice helps navigate the volatility due to uncertainties.

Doing nothing can be a right option as well, may not be the best, but in times of unknown future yes not deploying further cash and preserving it may also be a good option because is Cash Is King always holds good.

As a flip side to this, 2019 has not been a good year, 2020 while started well basis strong efforts from the Government and the RBI (tax cuts, rate cuts, huge liquidity – expansionary fiscal policy, monetary and credit policy) and indications were showing that our economy was in process of bottoming out but soon got into this tail spin because of COVID. While there is still no clarity on the quantum of impact this will have, both on social side and also on economic side, but all efforts are on to contain these to minimum.

Markets are in selling mode, herd mentality, lack of understanding and overload of information is causing everything being sold, some less some more. Valuations are down and some very good stocks are available at cheap valuations, but rationality is missing. Volatility is taking its toll, all movements are news based, beyond virus, oil tussle is adding another dimension to this uncertainty.

Retail investors are confused, anxious and looking for a credible guidance. It is therefore important that in the mid of all this we look at some realities:

a. The only way known to defeat the virus, is social distancing, therefore we need to ensure economic activity comes to a stop for few days.
b. Central banks and Governments are moving few steps ahead, to ensure while lives are saved, there is enough readiness to get economy going back on track sooner than later in future.
c. This also clearly implies that for one or two quarters that the world will have very low growth or no growth, probably to different extent in different geos.
d. It is a known fact that the coronavirus infects a fraction of the population and it causes severe harm to an even smaller fraction; it is important for governments to keep the fraction as minimal as possible so as to ensure that future is also protected. And while looking at market behaviour its important to keep this fact in mind, not all is going to get lost, temporary disruption is inevitable but with time life is going to be back on track. And so will stock markets across the world.
e. The extent of impact on economies, because of slowdown, or even shutdown is being assessed.
f. If these are true, we need to evaluate – Does this deserve a 30-40% decline in the total market capitalization of the world or 50-60% decline in market value of some of India’s best performing companies? We are basically saying that this stoppage of a quarter or two should mean that the current value of entire future earnings power of all companies globally will reduce by 30-40-50%. Think about that.
g. The central bankers and Governments know economies are going to be impacted, we will eventually come out of the panic of the virus, tacking that is a separate agenda but as and when that subsides, they do not want the economy to go into slumber for a long period of time. Which is why there are aggressive announcements on liquidity infusion, rate cuts and incentives for consumers. Even before this started our own Government and RBI in some form have been on an expansionary path.
h. The communication seems to be, when we get onto the other side of this medical hazard which we eventually will, we want to ensure things come back to normalcy and businesses and consumers face as low stress as possible.

It’s also important to review the situation in 2008, markets saw across the board sell off, but soon after, 2009 / 2010 saw smart recoveries. If we do believe that our regulators and governments are doing things proactively to ensure lives are saved and action are put in place to get economies back on track, we need also take actions in sync with those actions and depending on the risk tolerance we should:
a) Never exit, don’t stop SIPs
b) Under professional guidance rework portfolio, choose to invest and take benefit of this fire sale, stagger your investments over the next 3 months.
c) Preserve some cash to tide over the period of uncertainty.

At the end, be safe and stay healthy….

Certified financial advisor