OPINION: Ideal retail investment strategy to navigate current market volatility

Once these scenarios improve, India is expected to bounce back faster

investment One should never stop an SIP when the markets are down. On the contrary, they should try and increase your SIP amount if they can

In view of the COVID-19 pandemic, there is an economic uncertainty across the globe and India is no exception to it. Foreign portfolio investors have net sold shares worth over Rs 63,000 crore in March.

The unrelenting FPI selling comes on concerns over the impact of the 21-day lockdown on the Indian economy. The number of coronavirus cases across the country have also picked up in the last few days. Unless the pace of growth in reported cases subside, investor sentiment is likely to be on the edge with sharp swings in the market.

Further to this global uncertainty, major organisations, including the United Nations have said the global economy is taking a major hit owing to COVID-19 and the world will go into recession. This has been a major factor driving the withdrawal of the FIIs from the Indian market. FIIs have been major contributors to primary and secondary sectors and last year, they have been in betting heights since 2014 with $11.41 billion in equities in the first half of the year.  

However, the GDP data has been showing a linear fall since June 2019. While there was a marginal bounce in October-December 2019 quarter, the pandemic driven shutdowns could queer the pitch. Though we are still in early days, FICCI has pegged the potential losses to the Indian economy at around $120 billion. That is approximately 4 per cent of the GDP lost in the next couple of quarters. This is the direct impact and the indirect impact could be bigger. The fourth quarter GDP for FY20 and the first quarter GDP for FY21, could grow by just about 2.5 to 3 per cent and that would not be great news for the India growth story.

But the silver-lining here is, India as a country has done a phenomenal job in containing the spread of the virus as compared to the other nations. But this entire situation is giving rise to a lot of questions like should domestic investors be touching equity? Further, with a lot of investors, who went for equity MFs and direct equity in the last two to four years having lost not only their gains, but also their principal amount invested, is it still a wise option to invest in? What’s the best thing to do in such a scenario?

What to expect?

Prakarsh-Gagdani Prakarsh Gagdani

Once these scenarios improve, India is expected to bounce back faster and better as compared to the US and the European nations. Though there would be uncertainty and markets are not anyway expected to be better for next three to four quarters, yet India would be far better than the world. Further, Indian stock markets are already down 35-40 per cent from their peak in January 2020 (Sensex touched nearly 42,000 in the mid of January). And, one important thing to note here is that this fall was not after the market rally, rather it was after the stock market was stagnated for over two years. So when there are corrections like this, that occur after the stagnation for a certain period, a lot of negatives are already factored.

So obviously, there would be a downside, especially if the pandemic continues for a quarter or so, but it would not be another 40 per cent from here. It might be somewhere like 10 per cent from here, but definitely not another 40 per cent. So I believe that a retail investor should look at these corrections as an opportunity and invest.

What should an investor do?

It’s true that investors lost their money in the past couple of years, but we need to understand that MF investments should be considered for at least five years. Further, we need to analyze the other investment alternatives. So you need to study what are the investment opportunities and the returns you are acquiring from there. For instance, gold as an investment has only given returns in the last one year after being stagnated for around 4-5 years. So, on an average, the returns on gold in the past six years has been somewhere around 3-5 per cent.

So basically, the investors do not have options where they would get 10-12 per cent returns. Further, if you look at the MF investments for the 5-year horizon, you could end up making money. That’s because though in these five years you may have two to three years that may not be quite good, but the 1-1.5 year of rally would make up for the loss. So even if the investors have invested and lost a certain amount, they should hold on and continue with the SIP. So, I recommend, one should never stop an SIP when the markets are down. On the contrary, they should try and increase your SIP amount if they can.

Have a staggered approach to investment

With so much uncertainty and chaos, I would suggest that investors should go for staggered investments. For instance, if you have 100 per cent of money to invest, invest 40 per cent now and rest in fall.

This way you conserve some amount of your liquidity to buy quality stocks at really low prices. The ideal approach is to first wait for the volatility index to stabilise at lower levels as there is no point catching a falling knife. If growth returns and you get multi-baggers, you may eventually thank the chaos created by the COVID-19!

The author is CEO of 5Paisa Capital, a discount broking firm.

The opinions expressed in this article are those of the author's and do not purport to reflect the opinions or views of THE WEEK.