Market meltdown

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There is a meltdown in global stock markets.  The speed and ferocity of the crash have taken even the market gurus by surprise. The panic created by the coronavirus, the WHO declaring it as a global pandemic and the crash in crude has combined to produce a perfect storm in the market. In India, the Yes Bank saga has also contributed to the crisis. Investors have lost thousands of millions of dollars in a matter of few days which rarely happened in market history.

With 20 percent correction from the recent highs, the markets are in bear territory.  What is the likely scenario going forward? We have learned one lesson which we want to share with investors. Don’t sell in a market driven by panic. It will not protect you as one has already lost significantly.

Projections and predictions have become almost impossible since this is not an economic or financial crisis. To what extent the disease will spread; how long will it linger; will it be contained soon etc. are questions for which we do not have satisfactory answers.

What will be the economic fallout?

The global economy will slip into recession this year. India will not be spared; but India is likely to be one of the best performing economies. The crash in crude is a big boon for India. $1 reduction in the price of crude translates into a saving of Rs 10000 crores for India. Therefore, trade and current account deficits will be low, rupee will be reasonably stable, inflation will be low and macroeconomic stability will not be impaired.

The market meltdown has triggered the question – is this an opportunity to buy? Well, the answer depends on the investors’ risk appetite and ability to stay put. For an investor with long-term investment horizon and cash to buy, this is an opportunity. There is deep value in good quality stocks. A sharp recovery in markets is possible. Also, this is the right time to churn portfolios in favour of quality.

The present panic in the market is similar to the panic and meltdown of 2008. It is important to remember that investors, who bought during that panic and stayed put, made big money when the market rebounded smartly in two years.

In our previous letter (Stay Calm), investors were advised not to buy aggressively and to adopt a calibrated buying strategy. Now, there is more value in markets and therefore, better value-buying opportunities. The worst investment decision now would be to stop SIPs. The best decision would be to put more money in SIPs.

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