In the face of Adversity

Covid-19 impact on India

The COVID-19 pandemic has clearly been the most remarkable event in the history of markets, since the fall of markets due to the 2008 Financial crisis.

We have a market ahead of us which keeps us on our toes, it’s our call to jump out of it or skip a stepping stone and move forward to a better opportunity.

If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.

-George Soros

The Sensex came down from a mark of 41,198 as on 29/01/20 to 25,981 as on 23/03/20, which is a fall of 36.9%.
Nifty-50 on the other hand has also come down from 12,194 as on 29/01/20 to 7,581 as on 23/03/20, representing a fall of 37.83%.

The global markets have also lurched. Through 1 p.m. on March 18 the S&P 500 index was off 27% for the year to date, Germany’s DAX was down 38%, and Japan’s Nikkei was off 29%, as per Bloomberg Businessweek

Whenever an investor expects for recovery to happen in the market, figures can misguide them. For example, if the market goes down by 20%, it will need to recover by 25% to come back to the same mark. And, the recovery difference increases as the fall deepens.

Mathematical explanation is as follows:

KW Wealth Advisors

This factor must always be considered by the investor while expecting recovery.

The market crash is the result of the fast spreading coronavirus and its likely negative impact on the world economy. The fall is in line with the global benchmark indices as the domestic market usually tracks the major global indices and is likely to continue to be highly volatile in the near future.

Successful investing is about managing risk, not avoiding it.

-Benjamin Graham

What we suggest:

You can opt for the ‘Core & Satellite’ approach for optimum diversification and invest via the SIP mode in a staggered manner to reduce the overall impact of volatility.

The ‘Core’ part consists of the more stable, long-term holdings of the portfolio, whereas, the ‘Satellite’ part consisting of elements which can help push up the overall returns of the portfolio and can be relatively aggressive in nature, depending upon the risk appetite of every individual.

Besides, if you have investible surplus, it makes sense to invest some portion through Lump Sum.

Staggered Lump sum is also an alternative, for example, in 5 to 6 tranches in the next 2 months, with 30% being the first tranche and lowering it 5% subsequently; balanced tranches on reaching 15%.

But do so only if your risk appetite allows it and if you have a long term horizon.

Thankfully, investors have shown faith in the SIP mode of mutual funds — contributions to SIPs have been quite robust until February 2020 and may continue to rise steadily in the future.

We continue to hope for the best in future.