Ways to safeguard your investments during COVID-19

Coronavirus pandemic has changed the world forever. Seclusion has become the new normal. The pandemic has ravaged the world economies by derailing the growth engine. Markets have not been spared either; it is natural for investors to become anxious.

The irony is, in a bull market everybody wants to buy low, but when stocks are available at fire-sale prices, everybody wants to sell. Investors are making a beeline to sell instead of buying undervalued stocks. The half-price sale at supermarket excites people, but when the same is available in stocks, people are reluctant to buy. Such a shortsighted attitude is a big hurdle in creating wealth.

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Think for a moment, will the automobile industry cease production, or are hypermarkets closing forever? If companies are continuing business why should an investor stop his investment?

During 1992-93, BSE Sensex fell by 53%. India’s GDP during 1992 was mere 28,820.84 crores. Today BSE Sensex has fallen by a mere 25% and India’s GDP has touched $3 trillion. The point is the world is come out stronger from the present crisis, and growth will be on track after a few quarters.

Historically, massive rallies have followed a huge crisis. Every few years markets will test the patience of investors. In 2008 the world experienced the worst recession that threatened to destroy investor wealth. The self-fulfilling prophecies ruled the headlines, yet the world emerged stronger than ever. In May 2009, BSE Sensex jumped by a massive 18% in a day. The rest is history. Let us evaluate the present situation from a different perspective. Suppose one is running a business.

In the present lock-down, the businesses are in a vegetative state. There is no way of ensuring when things will return to normal. Would one shut down his business because of the uncertain environment? No. One will wait patiently for the restoration of normalcy. What does this mean? It simply means that there is hope that sooner or later the world will become normal again. The present crisis is just a brief pause in the long term growth cycle.

Coronavirus India update: State-wise total number of confirmed cases, deaths on May 10

Just as one would not shut down the business, one should not stop investing. An investor should cash out only when he requires it. Market panic should not be the reason to sell investments. Such impulsive decisions turn out to be economic nightmares. While investing one must determine the time he has before withdrawing cash from investments. For someone in his thirties, the present fall is an opportunity to build long-term wealth. Selling in panic is not only irrational; it can turn out to be an irrecoverable mistake.

If you are not an expert, you should avoid making decisions that can cause more harm then good. In a falling market, it is best to avoid checking the portfolio. It will only lead to more stress and anxiety which is something an investor should avoid at all costs. The best path of action is to let the dust settle and wait for the market to return to normal.

The Indian growth story is intact. Oil is trading at its 20-years low, for a country like India, which imports nearly 75% of its requirements, this is a huge positive. The interest rates are on a downward trajectory and the corporate tax rate has been lowered. This will ensure that India receives a lion’s share of investments.

Nifty is trading at low mean valuations. The midcaps are available at a substantial discount to their large-cap peers. Instead of panicking, one must concentrate on building a quality portfolio that will ensure decent returns over the long term. Fundamentally nothing has changed.

As Thomas Fuller famously said, “the darkest hour is before dawn,” the best for markets is yet to come.

However, if one is reluctant to invest in equities, one must invest in fixed income plans of mutual funds. The debt funds are ideal to build a regular income-generating portfolio. As an investor, one must consistently strive to build a portfolio that ensures decent risk-adjusted returns over a period of time.

Remember, the present storm will pass. It is important to remain calm and have faith. The rewards will far outweigh the risks.

(The writer is Founder, investonline.in)