Coronavirus, Downfall of Yes Bank and sharp fall in crude prices by Saudi Arabia have created panic in the market and the same has been witnessed this week. This week has been a roller coaster ride for all the traders/investors in the stock market. Out of the above-mentioned factors, coronavirus is the main reason for this sharp drawdown in the market.
Let us look at the market movements –
Date Value of Nifty50
13th Feb 2020 12174 pts
13th March 2020 9955 pts
18.22 % drawdown in just a matter of one month!
Definition of Bear Market:
A bear market is a condition in which securities' prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment.
So, technically Indian Stock Markets have entered the Bear market after 12 years. The previous one was during the 2008 financial crisis.
On 13th March 2020, in the early trades, nifty50 was trading at 8624 levels and it later recovered to close at 9955 points. So, this is the kind of volatility which we are witnessing right now in the markets. On this very day, investors/traders just saw the trailer of the 2008 financial crisis.
“History does not repeat itself but it often rhymes” – Mark Twain
In my personal opinion, it is difficult to predict short term movement due to the volatility in the market but in the long term, India as a country will continue to grow and create enormous wealth for its stakeholders as all the above-mentioned factors are temporary in nature and very soon normalcy will get back in the markets.
That being said, we can take advantage of this downfall and add quality companies /MF schemes in our portfolio with a long term approach in tranches and not just in one go as we are uncertain about the bottom which market will make in the future. Asset Allocation has always been the key factor in determining superior investment results. Asset mainly includes cash, debt and equity. It is a great time to deploy surplus cash in the market and take advantage of this sharp correction by keeping in mind the quality companies.
Please continue with your existing SIP’s if any. They must be showing you negative returns but let me tell you that your current actions will determine your future performance. One thing to note is that the prices have fallen but not the value of underlying businesses.
An extract from Howard Marks Memo dated 03rd March 2020
I strongly believe that coronavirus pandemic can be a great investment opportunity and the market will bounce back. It may take a couple of months but reversion is inevitable and hopefully, the economy will be stronger than ever.
- Avoid financial leverage
- Stay the course
- The market always bounces back (refer to the history of markets)
- Do not convert your temporary losses, if any, into a permanent one
- Asset allocation is the key
- Have a long term perspective/approach
On a lighter note;
Just look at what the Indian Economy has delivered so far.
This article was written by the Senior Coach for Finance and Stock Market at Unschool, Himanshu Raghani.