Ever since the outbreak began, it has managed to spook global equity markets, including the Indian equity market. The S&P 500 index which keeps track of the stock performance of the top 500 US companies, has shown close to ₹5.5 trillion of investors’ wealth go down.
The outbreak has raged across countries which has forced them to enforce social distancing and lockdowns. This has greatly disrupted the economy which inevitably led to the fall in investments. Investors have taken a safe approach and is now skeptical on making any further investments. As the world economies are closely knit together, it will impact global growth as well.
The market volatility is worrisome in the short term, but long-term investors need not worry. There could be some supply shocks as a lot of businesses do depend on Chinese goods. This could also lead to some demand destruction as global supply may get disrupted.
There is also the likelihood of businesses underperforming which could lead them to default in payments which may lead to a rise in Non-Performing Assets in the banking system. Issues like these, as witnessed in the past, are nothing more than a temporary phenomenon. Even during earlier outbreaks, markets did recover in a short span of 3-4 months.
Experts said there’s no need to panic as markets have gone through cycles like these before. The smart bet is to invest in long term investments in quality companies as prices have come down and this could turn out to be a goldmine when the economy recovers and goes back to normalcy. At this point of time, it is best to avoid direct stock investing if you don’t have the sources to research each company and make decisions. Instead, invest through mutual funds where the fund manager will do all that hard work for you.
Instances like these may make you fearful. But in reality, market volatility actually helps you build wealth as time progresses. One should understand that these are just market cycles. No significant impact in the future is expected. Therefore, investors are advised to continue disciplined investing through systematic investment plans (SIPs). Those who have the income can use this opportunity to invest more.
When it comes to equity investing, its best to go long term. As an SIP investor, treat these short-term corrections as an opportunity to accumulate more units at lower prices and benefit when the markets recover. So, it’s best to continue investing for long-term goals and don’t let the current temporary market scenario be a cause of concern.