How would rising Covid cases impact your equity investments?

The Covid-19 pandemic is perhaps one of the most economically costly health emergencies in recent history.

By Palka Chopra, Senior Vice President, Master Capital Services

The Covid-19 pandemic is perhaps one of the most economically costly health emergencies in recent history. Its spread has severely impacted the global financial markets. Global equity markets, including Indian markets, have rallied a lot since the last market crash. While the stock market was at its peak in February 2020, the sudden outbreak of pandemics triggered a freefall in share prices. But equity markets seem to be riding the second wave confidently, despite the economic activity in India having been derailed by the ongoing Covid-19 crisis. Market participants seem to be taking comfort from the Government deciding not to go for a full-scale lockdown, the vaccination to all adults, and hopes of normalizing in a few months.

The Financial Sector in India

The financial sector in India has undergone a massive evolution in the last decade. The developmental changes can be attributed to various components, including new regulatory policies. The Indian economy has witnessed a notable turnaround in recent years, keeping aside the pandemic. Economic growth has rebounded, and the Government has initiated various reform measures to encourage investment and strengthen productivity.

Further, the last decade has been the decade of digitization which has completely changed the face of the financial sector. Rise of fintech companies, mobile banking, cloud Banking. This new shift to digital compulsion will result in customers seeking the same in-branch experiences in their online interactions. In response to the slowing economic growth, the Government has made a flurry of policy announcements that have significantly pushed the country’s economic growth. There has been a solid commitment to game-changing reforms, their successful execution, and the willingness of the private sector to take risks and invest.

The Surge in Covid Cases and Market Outlook

Since Covid-19 cases are increasing, investors and companies are apprehensive that the stock market will nosedive in 2021. The scenario triggered worries about the situation that developed during early 2020 when the nationwide lockdown had left the stock market bleeding, with benchmark indices plummeting by huge margins.

There is a growing probability of a complete lockdown in the country, and investors fear another market crash. There is increasing volatility in the market. However, a market crash like the 2020s is unlikely. The 2020 fall was a knee-jerk reaction, and now the present market has already discounted, and improvement is expected in the coming period. Manufacturing activity and IT spending have gathered pace. So as the situation worsens, what is the correct investment strategy for investors?

Buy low, sell high vs buy and hold – which is best for investors?

Though there may be some near-term tension, most investors will look past the pandemic. Investors should leverage any correction in the stock market as a buying opportunity, as any lower levels from here can be an excellent opportunity for long-term investment. While sectors such as Chemicals & Fertilisers, Pharma, IT services, FMCG and Telecom have a solid potential even if a lockdown is imposed, banking, media, real estate, retail, and engineering may weaken on the degree of severity. However, short-term investors should not take any new position in such turbulent times. The situation is suitable for long-term investors who can accumulate quality stocks.

To summarise, long-term investors should continue to invest aggressively and systematically without worrying about temporary blips. It is better to diversify the portfolio to reduce the impact of volatility.

Conclusion

The stock market remains range-bound as investors are unwilling to take bullish positions at a time when the second wave of coronavirus is taking a heavy toll on human lives and the economy. While the Government’s repeated insistence on not imposing a nationwide lockdown has kept investors from panicking, the localized lockdowns have fogged their ability to forecast economic activity. Also, there is little clarity on how long the emerging situation will take.

All that is required now is that investors must be a little careful. Stay invested and stay positive.