To Buy or To Sell

To Buy or To Sell

A common question that comes to most of us under the COVID 19 Crises related to our investments is what should we do with our current holdings in Equity Shares and Mutual Funds (Debt and Equity).

Should we Buy at the current levels or should we sell at the current levels.

What will happen to the economy? By when will it recover?

Will the Financial System collapse?

I'm pretty sure, even the biggest asset managers have no clue of how thing will play out in the next 1 to 2 year.

This pandemic is an unprecedented situation which will  not only take toll on Human Life but in the Global Economy as well. India announced a complete lock down on 25th March 2020, bring the country to a grinding halt on the economic front. The Government has already lost a significant portion of the GST Contribution due to the lock-down for the month of April 2020. GDP Forecast for FY 2020-21 will reduce drastically. IMF also has cut the Global Growth significantly for this period.

RBI has announced a slew of measures to ease the liquidity situation in the system to support the Banking and NBFC Sector. The golden questions is How much of this will actually reach NBFC Sector which has been lending to a segment which was not catered by the Banking System. Will the Banks support the NBFCs with the liquidity being provided by RBI?

Business that are highly leveraged are eligible to receive an interest Moratorium, which means eventually they will have to pay, hence impacting the bottom line of these companies. When such companies lose 1 months sales, it will have a huge impact on the Bottom line for the entire Financial Year. This can lead to cuts in certain spends to reduce the overall impact on the bottom line for this year. 

The salaried segment in the country could be staring at a situation ranging from a Salary Cut to a Job Loss.  This can restrict the overall spending power of the people which will lead to slower than expected recovery in the economy.

The Outlook for Liquid fuel consumption is expected to be subdued for CY 2020, further indication no significant change in the Global Economic Outlook in the near term.

All said and done, as on today I believe, for those who are holding on to Equity investments should look to reduce the under-performing investments as the market rises and re-deploy around July and October 2020 upon declaration of Q1 and Q2 results for FY 2020-21 only after reviewing these results. 

For those holding investments in Debt Schemes should make sure they are holding good quality paper.

For those holding Cash in Banks, should look to increase their equity allocation gradually over a period of 1 year as there will be more clarity on how things will shape up ahead.

Nothing goes Up for Ever and Nothing comes Down for Ever, the markets will move in cycles, different reasons for falls every time. India as a country is better placed as compared to other countries due to the population demographics. We are still not very heavily dependent on Exports unlike China who exports most of the goods made in their country. Gradually as our economy starts walking again, we should be okay with our investments as well.

PS: The above are only my views for educational purpose and should not be constructed as an Investment Advice in any form.