It's sad and terrible to see and read about the terrorist attacks on New York City and Washington. Let our hearts go out to the victims and families who have been directly affected by this cowardly attack on innocent civilians. There has been an impact on financial markets worldwide with most stock markets declining anywhere from 5% to 10%. India's stock markets to have declined by about 3% to 4% (the circuit breaker has been reduced from 20% to 10% for individual shares i.e. if a stock falls by 10%, trading will stop).
Today is likely to be the worst day for the stock markets, and we should strongly recommend to investors to hold on in their own interest. If they redeem today, they catch the worst of today's panic reaction, and they are likely to get the worst possible NAV. There are several reasons why we believe the NAVs will definitely pick up over the next few days to rise above today's crashing NAV:
1. Indian stock markets are already ruling low, and further downside is limited. Stock market falling is just the typical alarm button from investors who tend to overreact
2. The fundamentals of the global and local economy will remain largely unchanged
3. Oil prices going up is a knee-jerk reaction and there is no rationale to it
This tragedy, like other calamities such as wars, could also revive the U.S. economy to an extent as they (i) seek to reconstruct and rebuild what has been destroyed (ii) commence hostilities against the terrorist perpetrators which again tends to increase spending and spark economic revival.
Clearly, the message to equity investors is to hold on.
Here again, hold on to income funds. In fact, there has not been a panic even today in the Indian debt markets. Neither the rupee nor bond prices have fallen that sharply, and they too are expected to recover over the next few days. Even in fixed income, today is not the day to exit.
Fundamentally, the worst thing one can do is to follow the crowd in moments of hysteria, confusion and overreaction. This is a sure way for failure in the investing world. When everyone else is in panic and turmoil and looking to exit, the people who stay balanced, think rationally, assess the situation and implications and act calmly will come out ahead.