Navigating Markets through the Corona Virus
Sensex touched 29,194 today, a fall of 30% from its previous high i.e. 41,952 as on on 14th January 2020. It certainly seems like an unprecedented, almost apocalyptic type situation as the spread of corona virus threatens economic growth and forces countries to go into lockdown.
However amidst what seems to be only doom, we wanted to offer our two cents in the most logical and factual fashion. Speaking from markets’ point of view, we would like to remind you that THIS HAPPENS, A LOT! Markets go down. In fact they go down a lot more than we remember and perhaps in times like these it’s a good idea to go down memory lane to seek some solace.
We chalked out the maximum single drawdowns (corrections) the market has gone through every calendar year since its inception in 1980.
As you can see, since Sensex’s inception, there have been 17 years where the market has seen a steep correction (bear market) of more than 20%. CY 2020 makes that 18. However despite all the apparent red, Sensex has given a return of 14.58% since its beginning.
Another very interesting observation is that markets always seem to immediately reward its investors if they stay on course through the correction either in the same year or the next one. Let’s look at 2009 for example. Despite a correction of 21%, the markets gave a return of 76% in the same year and 17% in the subsequent one.
Perhaps we’ve forgotten the nature of the markets because it has treated us so kindly since 2011? Now that you are aware of the markets have behaved in the past, is the current market decline something that you should be surprised about? To paint this as a crisis or to convert this into an opportunity is a choice we as investors have to make.
As far as the corona virus is concerned, we think it’s wise to agree that estimating economic damage, speculating on a cure or the number of infection is anybody’s guess. However this isn’t the first pandemic we have faced. If we draw an inference from similar incidences whether it’s SARs, Ebola, Zika, etc., they too created panic in the market but eventually medical science was able to find a cure and stabilize the situation. Receding infections in China have made us fairly confident that in this case too medical science will prevail – it’s just a question of how soon?
We would advise the following:
1. Existing Investments in Direct Equity/Mutual Funds:
Our opinion is to stay put. Investors looking to renovate or churn their portfolios should wait until market displays a few days of stability. We are happy to keep in touch with you to chalk out an action plan.
If you have invested with us, you’d be glad to know that despite a 30.40% market fall, our recommended funds have fallen by 13.16%. We anticipate that they will recover much quicker than the market once the situation stabilizes and continue a handsome outperformance in the long run.
2. New Investments in Direct Equity/Mutual Funds:
People looking to take exposure to equity should start in a staggered fashion. Either invest via the STP route or allocate lump sum by setting a weekly date (e.g every Tuesday and Thursday). Please do not try to time the market or estimate the bottom. A staggered long term investment approach makes timing less and less important. Please go through our blog on the futility of trying to time the market: