While a lot has been written and spoken about the impact of this crisis across the socio-economic strata, the immediate visibility of the same is seen in the performance of the stock markets.
The last few weeks have been unprecedented in human history. To paraphrase Murphy’s law, “What could go wrong, has gone wrong” and we are seeing a problem, the scale of which has not been hitherto handled in recent history by any government in the world. While a lot has been written and spoken about the impact of this crisis across the socio-economic strata, the immediate visibility of the same is seen in the performance of the stock markets. Stock markets prefer predictability and hate uncertainty – the fact that this crisis is unprecedented and has no prior playbook to operate that makes the markets jittery, which ultimately results in erosion of the portfolio values.
The good news is that there is a concerted global effort underway to handle this issue. Since the virus is agnostic to any social, caste or race considerations, the effort to take care of the lowest strata of the society is indeed heart-warming.
Again, at a global level, countries worldwide are pumping in over $5tn of fiscal stimulus to ensure businesses stay afloat and economies survive this onslaught. The key thing to note here is that businesses will survive, companies may not shut down – unless of course, their economic models change or evolve.
India has always been a country of “Jugaad” or adapting to survive. It is widely assumed that not only will it be able to navigate the health crisis reasonably well, but will also be able to spot and capitalize on business opportunities coming our way. These could be in sectors like health care and pharma, or in manufacturing wherein, a lot of global manufacturing gets shifted from China to India. The efforts made by the finance and commerce ministries in terms of ease of doing business, as well as the liquidity and fiscal stimulus the government has been providing for the last few quarters makes this a once in a lifetime opportunity which will be grabbed by Indian businesses.
So how does that pan out for your investing strategy for the current year?
Currently, most equity portfolios, if not all, will be deeply marked down. However, one must remember that this is a notional value and will continue to remain so until an actual loss is booked. Hence, from a view to investing in this fiscal, one needs to look at a very dispassionate approach to one’s portfolio from a long term perspective
I would advocate a simple 3 step process to be executed every quarter starting immediately.
Step 1: Sit with your advisor and start with an asset allocation review in the first week every quarter. This will help you assess whether you are on track to achieve your goals and re-balance accordingly. Chances are that you would be underweight in equity currently and this would make you look at investing further, rather than fretting over your notional portfolio value.
Step 2: Once you are done with the asset allocation piece, evaluate each asset class clinically. In equity, for example, you will find that some of the stocks you have purchased have fallen more than others. That should not be a green signal to average these stocks blindly and sell those which have not fallen as much. In reality, chances are that you will have to do the opposite. Stick to quality and do not try to find value – these are uncertain times and you don’t want to be left trying to hold a falling knife. Likewise for your investments in portfolio management schemes and MFs. Again, the importance of the advice of a professional wealth manager cannot be overemphasised.
Step 3: Make a conscious attempt to stay away from the noise. For most investors, managing money is not their core. If one has to take a cue from investors in the US, 2/3rds of the equity investors did absolutely nothing to their investments during the current crisis. To stay invested and let your investments compound over a period of time is a strategy which works globally.
Please get yourself a good wealth manager or advisor to do this for you. Not all of us are qualified enough to look at all the asset classes with the same objectivity a professional money manager brings it to the table. Besides, there is always a tendency to get carried away by the noise and making some knee-jerk decisions.
Vikaas M Sachdeva
Chief Executive Officer, Emkay Investment Managers Ltd.
Vikaas is an industry stalwart with over two decades of experience. In the course of his career, he has held several influential and senior management positions across marquee financial service organizations. He has a broad range of interests across functions like sales, distribution, marketing, investment banking, product, and customer service.
Vikaas was the CEO of Edelweiss Asset Management Ltd, successfully turning around the business culminating in the acquisition of JP Morgan MF and was also the Global CEO of Enam Asset Management Ltd, where he oversaw both global and domestic side of the business. He has also worked with Birla Sun Life International AMC Ltd., and ING Investment Management (India) Ltd. He has been an erstwhile member of the Mutual Fund Advisory Committee (MFAC), a high-powered committee appointed by SEBI to advise them on governing the MF industry and he was also on the board of the Association of Mutual Funds of India (AMFI), heading the ETF and indexing committee, which submitted the first white paper on ETFs to SEBI. More recently he was associated with the Asset Managers Roundtable of India (AMRI), the nodal body for FPIs in the country. Currently, he is a member of the Advisory Committee of the India FinTech Forum.
