One question across all minds? – IS IT THE RIGHT TIME TO INVEST?? It may be difficult to believe that this may be a good time for investors to invest with the red splashed across stock counters – Economies across globe are going through a lot like
- A pandemic that shows no signs of soothing,
- Debt ridden corporates,
- Lockouts in states etc.
And talking about Indian economy we have a bank being put under moratorium, the global economy in a tailspin and a possibility of further lower GDP growth rate which had just started showing signs of bottoming out.
In context of Indian markets, since 1991 markets have crashed 10 times between 25-35%, however all 9/9 times market has recovered to the previous top.
HOW INDIA IS WELL PLACED FOR RECOVERY? –
- Low Crude oil prices and cheap capital around the world are silver lining for our economy. A prolonged spell of low oil prices will support discretionary purchasing power. Falling energy prices could reduce India’s inflation and lower the cost of its import bills that could help in decreasing fiscal deficit and current account deficit. Further, softening of inflationary pressure on the economy could also give the Reserve Bank of India more room to cut interest rates further to help stimulate growth and improve the flow of money in India’s financial markets.
- Shift of supply chain from China to India – Several companies may now increasingly look to diversify their manufacturing base out of China. Availability of cheap Labor and Raw materials and Tax incentive given to manufacturing companies till 2023 may act as incentive for manufacturers to set their base in India.
- Short term pain for corporates–Valuations of the company are nothing but discounted cash flows of the company till perpetuity. However, it seems like market has started discounting prices only based on next 2-3 painful quarters. Market cap-to-GDP ratio has fallen swiftly from 79% as on FY19 to 58% currently.As Buffet says, Investors with 5 -10-year time horizon and focused on company’s earnings power will do well in stocks, and that the outbreak has “not changed” long-term outlook in equities.
Investing with the expectation of making a quick return is a risky move, given the uncertainty regarding how long it will take for the pandemic to subside and economies to recover. Investors willing to take some risk of volatility and uncertainty could make a tactical call of going overweight in equity and using a staggered way of investing like doing SIPs. Jumping on and off asset classes like Debt or Equity and trying to time the market is difficult for a retail investor. World is sloshed with liquidity, 0% interest rates in US and negative in many other developed nations has placed money in hands of investors and as soon as there is some visible and concrete signs of stabilization, this money will flow across asset classes.
Considering above points, risk taking investors with longer term horizon should take the advantage of current market scenario.
