Coronavirus has created unprecedented havoc in the lives of the people. Equity markets too have plunged dramatically. Dhirendra, a very pertinent question that comes to my mind is-what happened?
Dhirendra: Panic and panic for understandable reasons. It is not on account of fictitious reasons. It is rooted in the fact that this virus has implications for the economy in general and for companies in specific.
It is not just about people not going to schools, cinema halls, shopping malls or consumers not consuming enough. It's not limited to that. The thing is that the virus is still playing out and we don't know how long this situation will linger on. It is very difficult to anticipate that. Also, it is just not about how many people are dying, it is also a matter of how many businesses are prepared to deal with something like this which has huge economic implications. And this is going to affect companies. If people are going to remain indoors, or if they are discouraged to travel, that itself will have a huge impact. Because people have to make a living and businesses have to run. This is a big derailment across the globe.
We are just beginning to see some cases in India and we don't know how it expands. And even if we are able to control it, businesses will still be hurt. We don't know how long it will take to get back to normalcy. So understandably, markets are not only in panic, they are reflecting great confusion. We might just start getting some kind of sucker's rally. Any fall or any up is never in a linear way. It will go up and down many times with a more broader direction towards one end. Needless to say, we have a more downward direction right now. But this is also presenting a huge opportunity as well as a threat to investors.
So under such circumstances, do you think the market will be able to bounce back?
Dhirendra: Yes. Markets will bounce back, but I don't know when and nobody knows that. And that is why you see this total panic and confusion. Because no one knows how long will it take to resolve and when everything will get back to normal. That is the state.
It is also not a matter of the central government acting in concert to resolve a problem. Remember the 2008 crisis where central bankers did act. The Reserve Bank created policies to restore investor confidence. But this is not about investors' confidence. This is a general scare. A general scare caused by the government because it is important for them to take precautions. This will lead to a deceleration of the economy and this will also lead to a slowdown in consumption. This will lead to a disruption in the way we conduct our affairs every day.
But I think good businesses will make money over a long period of time, if humanity is not coming to an end. In fact, it will create a great opportunity for some of the good businesses. The weaker ones will actually get weaker or die and the better ones will actually do better. So this will drive even more quality orientation in the market. But we don't know which ones.
Right now we're seeing this reaction that an airline stock or a cinema stock or some other stock is in free fall. But over a period of time, we will find out that some things are more resilient. We still need to consume things.
Unfortunately, the Indian situation is a little grimmer than the global scenario. The Indian markets were not in a bull phase. They were not like the American market, which was going up for the last 10 years and it got disrupted because of this. We were not doing well anyway and we were trying to get our act together. We were just organising our affairs in terms of banks, NPAs and how business is conducted. And in between, this came as a massive blow. So this is a fall at a point when we were not doing very well.
That apart, I think investors don't have much of a choice in terms of what they should do except managing or controlling what is in their control.
So what would you tell the investors on how to go about dealing with this in such circumstances?
Dhirendra: There will be two kinds of reactions. A lot of investors would like to get away with whatever money is left while others would want to take benefit of the opportunity.
Don't try to time the market perfectly: The other set of investors would be tempted to profit from the opportunity created by the market considering that it has become cheaper. Even don't do that very aggressively. Do it in some methodical fashion. If you are lucky to have that money, spread it over the next four, five or six months. Because if you invest a large sum of money and there is a massive decline in value thereafter, you will have great regret and you'll be driven out of the market forever. So most investors would try to time the market perfectly. Don't attempt doing that.
These are the tangible things that a person can do. What about the intangibles or the fear that I have in mind, that my hard earned money is gone?
Dhirendra: It would be gone only if you redeem your investments. You should consider:
Limiting your media exposure: Too much exposure to media will only scare you. So cut your media exposure.
And besides that I would ask you to simply manage what is in your control. For that, follow the basic principles which we keep reinforcing all the time, even at the cost of sounding like a stuck record.
Diversify to de-risk.
Be a regular investor.
Have your asset allocation which is aligned to your temperament, your experience and your investment timeframe.
Never invest your short-term money in equity.
So if you're onto any plan, stick to it. Don't take your losses and have that long-term orientation. This kind of thing has happened in the past. And we always look at it fondly with hindsight that, oh, that was a great time to invest.
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