As I write, the BSE SENSEX and the NIFTY 50 are down some 2.0 per cent. The USD is up to 93.40 versus the INR. President Trump is done with making his speech, which was much anticipated but left the worldwide audience with more questions and heightened fears.
A New Normal of Volatility
It is actually alarming that daily swings in the stock markets of 1.5 per cent to 2.0 per cent have been internalised by a lot amongst us and that tells you how immune we have become. But even more so is the bigger issue of the CTA (call to action) now. What shall we do now??
Global Disruption, But Not Permanent
The first thing is to realise this for what it is. It is a disruption to the global order, sure but that has been brought about by entirely man-made decisions and their consequent fallout. Global growth is sharply down and will remain at a lower level for some time. Sure. Inflation is on a sharp upswing and will remain so because of energy costs going haywire. Sure. Earnings visibility is downward biased. Sure. But will the war end? Sure, to that too. Will it end sooner than later. Sure, it will. How long it stays like this is anybody’s guess but surely it will end.
But irrespective of that, what remains a cornerstone of savings and investing are two fundamental issues: 1. What is your risk profile 2. Are you saving/investing as per need and time horizon. If these two are addressed comprehensively, the rest fall in place. Else it is like putting the cart ahead of the horse.
Step 1: Stay Invested Through the Cycle
So, to step 1. If you have money invested in equity, stay invested. If equity values have come down sharply, do understand that is the one asset class that will also be a leader in rising up again. This has happened time and again and will happen time and again. Does one have any other option for a fastest route back to earlier levels?? I am sure there aren’t any. The one red flag is making sure the economy that you are investing in is a growing one. Resilience is the hallmark of people and companies and they make the economy. If the headwinds wind down and the tailwind takes strength, the uplift is so much stronger.
Step 2: Time for Portfolio ‘Spring Cleaning’
Even though the suggestion for staying invested remains, it does not indicate one remains in the same things. This is the time for spring cleaning. Exuberant markets lead to accumulation of garbage. Clean them out and focus on a few high growth, low downside segments and make sure this time the investment horizon remains adequately long…in excess of 5-7 years.
Step 3: Short-Term Strategy – Liquidity First
If you have money to put aside for the next 6 months, stay with liquid funds. Expected returns are likely to be upwards of 6.5 per cent-7.00 per cent over the next few months. The mid-east crisis has put the liquidity system under a lot of pressure and the upside will take some time to settle. Make use of it.
Step 4: Medium-Term Play – Balanced and Multi-Asset Funds
If you have a horizon of up to 18/24 months, the bulk of your choice is in BALANCED ADVANTAGE FUNDS and MULTI ASSET ALLOCATION FUNDS. The medium term, as the time frame just referred to is called, is ideal for products like these. The availability of multiple asset classes for the fund managers to choose from gives them the leeway to not only minimise risk but also optimise returns. If you are not convinced, check out how they have performed over the last 2 years and the last quarter too and you will know what I am talking about.
Making Sense of Market Corrections
Consider the fact that today one is putting aside money in such a time when the markets are down close to 20 percent from their recent peaks. The domestic economy continues to show resilience and the availability of alternative energy sources is pointing to a decreased anxiety level. Economic fundamentals, although heavily impacted, still continue to be reasonably robust.
A Crisis, But Also an Opportunity
And to reiterate, this issue is man made. This will end. But our financial planning needs to be ahead of the loop. Use opportunities as and when they come. And this is a mega opportunity. Don’t stay away from one such.
Happy investing.
(The author is the Founder & CEO, Plexus Management Services)
Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP Network Pvt. Ltd.
