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Investing Money During the Coronavirus Pandemic

Apr 16, 2020 | 3 months ago | Read Time: 4 minutes | By iKnowledge Team

A Period of Unprecedented Uncertainty (And Opportunity)

We are now experiencing one of the biggest crisis of the century. Fear of the unknown seems to be gripping all aspects of our life. Coronavirus continues to spread throughout the world at a dizzying pace, with almost 20 lakh people infected and over 1.2 lakh deaths.

Firstly, there is no denying that the coronavirus pandemic will have an impact on economic growth and corporate earnings in the next few quarters to come. This volatility is likely to continue until the pandemic reaches manageable levels. All countries will have to collaborate to put up a strong defence against the virus.

Investing During Corona

Investment Strategy Amidst Coronavirus Panic

At this time, many of us would be worrying about our investment portfolio and that is totally understandable. But don’t let panic influence your investment strategy. Because, time and again, we have noticed that the markets in India and the world regain confidence and bounce back.

Going by the measures taken by Governments of countries like India, China and South Korea in managing the virus, we can hope that it will subside in the next few weeks. In such a scenario, the economic damage will be temporary and transitory in nature. Here, it is important to note that the fair value of a fundamentally strong quality stock does not change because of transitory stress in its earnings for a few quarters.

Now think like a normal customer: Why are malls and shops filled with customers during Sales? Why are they empty during other times? Because we get the same goods at a lower price. Unfortunately, in markets, people do not follow the same basic rule. We panic when the market corrects and start thinking of the worst possible scenarios, while we should be investing more.

Market Scenario During Previous Virus Outbreaks

While the past is not a guarantee of future happenings, but let us see what happened in similar situations:

Virus Outbreak Period of outbreak Return of Sensex
during outbreak (%)
Return of Sensex after 1 Year (%)
SARS Jan 03 – Mar 03 -10.1% 83.4%
AVIAN Influenza Jan 04 – Aug 04 -12.2% 50.3%
EBOLA Dec 13 – Feb 14 1.6% 39.0%
ZIKA Nov 15 – Feb 16 -13.1% 24.1%

Contextually, valuations today have come down to attractive levels as Nifty is now trading at below its mean valuation in the last 10 years. More than half of the Nifty stocks are now at more than 10% lower than its long-term average valuations. The discount of Mid-cap over Large-cap is at a very decent level. Therefore, it’s a great opportunity to buy quality stocks where the fundamentals have not changed but the valuations have corrected to an attractive level due to global sell-off.

Focusing on the Brighter Side

Interestingly, human minds tend to overlook silver linings when they are under the grip of fear. At this juncture, there are many such silver linings for the Indian economy which should not be overlooked. First, the oil prices have fallen by more than half to its 20 years low. It has very positive implications for a country like India which imports more than 80% of its requirements. Second, the interest rates have been falling, and corporate tax rates have been reduced. Both these two factors will improve the Corporate Balance Sheets going forward. Third, the forex reserve is at its peak and rupee is relatively stable as against other global currencies. Last but not the least, we have a very stable government with a strong mandate to revive growth with multiple long-term reforms that have already been implemented.

Invest Smartly & Cautiously

Therefore, please have faith in India growth story and stay calm. This is not the time to pull out your investments as Thomas Fuller famously said that “the darkest hour is just before the dawn”. In fact, this is the time that smart money buys equity. However, if your risk appetite does not permit you to enter equity market at this juncture please consider investment in Fixed Income Funds which is a good option in falling interest rate scenario.

Finally, we, at Aegon Life, are trying our best to protect the downside of your equity funds in a volatile market such as this, and at the same time trying to build up a portfolio that ensures superior risk-adjusted returns over a long-term horizon. On the Fixed Income front, we are keeping credit risk at a very minimum level in order to safeguard your hard-earned money from any kind of market-related stress. We have an extremely professional and committed team of Equity and Fixed Income Fund managers who are working day in, day out to protect your interests. I can assure you we will put our best foot forward to safeguard your interests. Also, secure your requirement with monthly income by opting for our term plan with dual protect feature.

Stay safe, stay healthy.

Sources:

https://coronavirus.jhu.edu/map.html


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