Be Judicious And Stay Tethered To Overall Asset Allocation

Ok, so March 12, 2020 can officially be considered one of the worst days for the Indian stock markets – ever. The S&P BSE Sensex and NSE Nifty 50 indices suffered their biggest single-day selloff ever in absolute terms with the Nifty losing as much as 9 per cent or 950 points to trade at 9,508 levels during the session - its lowest level recorded since June 2017. The day finally closed with the Sensex crashing by ~2900 points or ~8.18 per cent and the Nifty losing ~868 points or 8.3 per cent.

Mirroring the rout in global markets, domestic markets skidded after the World Health Organisation (WHO) declared the coronavirus outbreak as a pandemic. The announcement came in the wake of a rapid rise in Covid-19 infections around the globe. The WHO also added that Italy and Iran were the hotspot countries. With the number of people having being infected increasing at every count, fears of a deep global recession are only getting further elevated. Stock markets across the globe responded with a massive sell-off as investors were pushed into a zone of heightened risk aversion. Fears of an even larger contagion were compounded after the United States suspended travel from Europe and India virtually closed its borders by suspending all tourist visas till April 15, 2020. 

The key question that is plaguing investors is, “what to do now?”

The most important thing to do at the current moment is to drown out the noise and to focus on what you as an investor need to do. Understand that you are an investor and not a speculator. As an investor you need to hold strong in turbulent times rather than react at intermittent triggers. Remind yourself that you are in it for the long-term and would any day eschew short-term gains in favour of long-term wealth creation. I know this is hard to do on a day when the markets fall by 8 per cent. However, it is exactly what you should do on a day when the markets fall by 8 per cent. Yes, there has been significant wealth erosion. Yes, the future looks bleak from where you are currently standing. But, remind yourself of Warren Buffet’s quote, “Our favourite holding period is forever”. Do not panic and unnecessarily exit your investments while they are in the red. Instead, evaluate your holdings, assess their future prospects in light of the current scenario and then make informed decisions. This can also be an opportunity to scout for buying strong growth companies at compelling valuations. Just be judicious and stay tethered to your overall asset allocation strategy.

In the long-term, when you look back, the current market volatility would seem like a blip rather than a tornado.