30/03/2021
What will happen next!
The honest answer is - nobody knows. But does this add anything to our battered portfolio or bruised ego or depleted wealth? Let’s not attempt to answer this! It’s so obvious.
Let me attempt to answer a few questions thereby clarifying a few doubts and providing a path for investors to navigate through these volatile times.
How long will this crisis last? How long will it prolong before the world starts working again with a ‘new normal’? One month / one quarter / 1 year / 2 years / 3 years? Let’s put the worst case scenario. Someone may even say forever or even never. If world is not going to recover ever than just do not even by green bananas or mangoes!
How much time will it take for things to become normal? Everyone has a different opinion. Medical experts are giving conflicting and pole opposite opinions. And this pattern of conflicting opinions is limited not just to Corona, but just about anything. Every person can go by their own forecast/predictions/scenario. Someone may say it will take 3 months for things to normalize, while others may say 3 years.
Once you come to a conclusion on that part, then the next thing to do is to add a little more time frame to it to be on a safer side. So people saying 3 months may plan for 1 year and those who say 3 years may plan for 5 years.
Investors need to keep liquid financial assets in the form of bank balances/ bank FDs/ liquid funds/ ultra- short term funds/ PSU bond funds/ AAA corporate bond funds. They can create a mix of these assets for the suggested time period from 6 months to 5 years.
Next question to be answered is that where will India be post the ‘new normal’? Will India be better off or worse off? If we believe India will be worse off, the question for businesses/ jobs/ real estate become more critical than investments. Let us focus only on investments for now. In that case, significant part of the portfolio has to be in gold, some part in international markets and the rest in top rated debt/ PSU bonds/ government securities!
If we believe India is going to be better off, which assets category can give us best returns? The answer is simple – that asset category which has corrected the most - Equity!
If we agree that equity is going to be the best asset category going forward then how does one go about investing?
One question that many investors have is - what will happen if I invest now and markets further correct in a big way? Or what will happen to my existing portfolio? It is already down. Should I exit now? If I do not exit then it may fall more.
Yes, both these possibilities do exist. The question is how much market can fall from these levels so as to give you comfort to invest now OR take money out now and invest again later.
Some may say Nifty at 8k, others will agree for 7k and some will predict as low as 6k for Nifty. I very honestly do not know the path. But will you invest even when Nifty reaches those levels? When Nifty was at 12k plus, many investors wanted correction to enter. But when correction actually does occur, do investors invest or become fearful? Just check your current mood to figure out the answers. We want sentiments and fundamentals of Nifty at 12k but want price at 9k. Let me tell you – we cannot get both!!
If you believe India will be better off and like me, do not know the path Nifty is going to take, then the best course will be to do the following:-
- sanitize your portfolio to either protect from further downside, or
- sanitize your portfolio to take advantage of potential market recovery,
- or both.
- invest your cash in the next 6 months to 5 years into equity on every fall.
Many investors are looking at experts for answers and all of us are at loss of words! We are always at loss of words but in bull market our cacophony sounds like melody!
Job of a good advisor is not to predict but prepare! Today is the most opportune time to prepare your portfolio for tomorrow!!!
Stay safe! Stay home! Predict never, prepare always!!!
Vijai Mantri on 30th March 2020
