The spread of the Novel Corona Virus has left national and global economies to sail through its toughest time. The immense cost to save lives and prevent further spread of COVID-19 by vaccinating the entire population is looking like visioning the impossible. March 2020 introduced the world to the most terrible and unforeseen crash of markets globally. Hoping for the best in the coming months, the economy might take a U turn and get back to its normal shape eventually.
The signs of recovery, a ray of hope in the darkness clad path:
Major economies of the world like the United States of America and China are recovering. It is expected that the rest of the world might follow the pattern. Resultantly, stock markets may witness a positive retrieval.
US may register a 6% growth rate in 2021 whereas China is predicted to attain a 9%.
Retail sales in the U.S are marking a sharp recovery and jobless claims are coming down.
Europe too has considerably gained control over the situation and is likely to achieve a 6% GDP growth in the second half of the year.
Where does India stand in the middle of the crisis?
The second wave of the global pandemic has hit India very badly. In FY 22, there was a prospect of above 11 percent GDP growth rate and Nifty earnings growth too to be crossing 30 percent. But since the adverse effects have washed away the targets, the GDP might remain at 8% and Nifty EPS around Rs.510 for the same period.
The current situation is quite challenging and there have been many restrictions on economic functionality due to voluntary or mandatory measures taken to prevent the rapidly increasing spread of the disease. In the absence of any clear idea on how this chaos will end, the growth prospects are paused, and the chances of any miraculous recovery are thin.
How to manage your funds under the current situation?
Calm your mind as there is no need to panic. Think about what the situation will be a year from now and don’t make any hurried decisions. Use past experiences and stay invested in the portfolio. Do not resort to quit the Investment agenda.
Withdrawing from global funds is not advisable as different countries are facing different economic situations and the returns are not the same everywhere. There are positive responses elsewhere if not in a few of them.
Continue with your SIPs and STPs and do not get driven by any fear or greed. You may opt to rebalance your portfolio. Fixed investment returns are going to remain lower but safer. You can allocate a part of your extra funds or income to fixed income category.
Markets are going to be volatile but continuing with equity options will not do any harm in the shorter span. Go for an underweight asset and sell the overweight asset. Review your portfolio from time to time.
Investment strategy is going to be tricky as there are chances that inflation will see a hike. There is no threat to liquidity and markets are also buoyant.
Invest in midcaps and smallcaps through mutual fund SIPs since finding potential blue chips from the midcaps and smallcaps is not an easy job. Majority of India’s corporate profit comes from the top 20 blue chip companies. They include Oil and Gas, FMCG, capital goods, IT, financial services. It is advisable to continue with your investments in these companies as they will keep performing in a similar manner as they do.
Yes, the economy is facing a testing time but do not jump to any decisions without consulting financial advisors.
Bhoi Smrutirekha Dharanidhar