Market Flu Turns into a Pandemic. Does This Provide a Value Buying Opportunity?

Mar 13, 2020

Last Friday when I wrote an article about the equity market catching the flu, I had no idea that it was no ordinary flu and that it would turn out to be a pandemic in a week.

What's causing pandemic crash in the global market?

In the last few days, there has been a huge selloff in global equity markets. Massive decline in international oil prices, WHO declaring coronavirus as pandemic, countries imposing shutdowns, and its consequent impact on the world economy have hurt investors' sentiments across globe.

As global markets crashed, the Indian market which usually tracks major global indices fell in the rout as well.

Last evening I was chatting with my cousin, a keen follower of equity markets, about the market's biggest single day fall ever, coronavirus, among other things, and he pointed out that the SGX Nifty has dropped over 7%, which means that the Sensex could have a gap down opening of about 3,000 points on Friday, 13 March.

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As anticipated, the S&P BSE Sensex and Nifty plunged sharply on opening. Not just that, it hit 10% on the lower circuit, leading to a 45-minute halt on trading.

Sanity prevailed after the trading halt and the market staged a smart recovery, gaining 4,715 points from the day’s low. However, it is still about 20% down from the peak it had achieved in January, 2020. The market crash has eroded trillions of investors’ wealth in the last few days, taking the Sensex and Nifty back to the 2017-18 levels.

Graph: Virus spread triggers massive selloff

Data as on March 13, 2020
(Source: ACE MF, bseindia.com)

Over 1,200 stocks hit 52-week lows in today's trade including HDFC Bank, Reliance, TCS, Sun Pharma, Tata Motors, and JSW Steel.

Does this provide an opportunity to value-buy?

American Businessman and philanthropist, Shelby Cullom Davis once said "You make most of your money in a bear market, you just don't realise it at the time."

Till now valuations in many stocks were high despite the sharp correction over the past few months due to economic slowdown, creating a lot of room for correction. The ongoing market crash has lead to a significant correction in the value of such stocks.

Though markets may continue to see-saw between gains and losses in the near term due to various domestic and global factors, there are lot of positive signs visible that can work well for the economy as well as the equity market over the long term.

International oil prices have plunged due to price wars between major oil producing countries and this can benefit Indian economy to some extent. There will arise new export opportunities for India as China may lose market share as a result of industrial shutdown to contain the spread of virus.

Coronavirus has proved to be an additional setback for the economy and may cause delay in recovery. However, it is likely to cause only temporary pain -- India is likely to gain meaningfully over the next few years from the constant efforts by the government and RBI to support growth.

This makes it an opportune time to pick and invest in fundamentally strong stocks available at attractive valuations. Once the markets bounce back, investors will be rewarded immensely for their patience.

But since investing in individual stocks can be risky, investing in well-diversified and efficiently managed mutual funds can prove to more rewarding.

It is difficult to predict which market capitalisation will benefit the most from the recovery. Thus, it makes sense to diversify your mutual fund portfolio based on your risk appetite, investment objective and time horizon to goal.

The 'Core & Satellite' approach is one of the most successful and time-tested method to diversify your portfolio.

The 'Core' part consists of the more stable, long-term holdings of the portfolio consisting of large-cap fundmulti-cap fund, and value style fund.  Whereas, the 'Satellite' part consisting of mid-cap fund, large & mid-cap fund, and an aggressive hybrid fund can help push up the overall returns of the portfolio.

Through this approach your portfolio will be not only be well placed to outperform during the market recovery, but also be able to contain the downside if the volatility persists.

If you wish to invest in a readymade portfolio of top recommended equity mutual funds based on the 'Core & Satellite' approach to investing, I recommend that you subscribe to PersonalFN's Premium Report, "The Strategic Funds Portfolio For 2025 (2020 Edition)".

This premium report will help you build your optimum mutual funds portfolio for 2025 without any effort on your part. If you haven't subscribed yet, do it now!

Markets can be highly unpredictable and therefore one must avoid timing the market. If you have invested in research-backed portfolio based on your personal requirement, then your strategy should not vary with changing market conditions. You may opt for the systematic mode of investment to invest in a staggered manner to reduce the overall impact of volatility.

That said, if you are financial goal is approaching close, it would be better to shift your investments to safer avenues.

 

Warm Regards,
Divya Grover
Research Analyst




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