Date: 20-03-2020
COVID-19
My understanding on current financial market situation & action one can take.
While everyone has an opinion on what covid-19 can do in terms of harm, how long it can survive & what can happen to world, one must understand that these are just opinions. For those who are full time into financial market, for them it’s more important to exercise distancing from whatsapp and other non-verified sources of data, as that is causing more panic & losses. It has resulted in making our visibility so opaque that we don’t want to even dare to optimistically see what can happen post 2 months, while most of us agree that this situation cannot continue for long. With most of the world and domestic indices are down 30/35% in no time, I think we are not only factoring in slow down but no to negative growth in next year & may be also FY22.
This behaviour is obvious because world has gone into risk off mode – a situation where no rational thinking has any place, only what is important is stay liquid. You write a negative blog and you will have lots of hits, and any optimistic blog will be ridiculed because the flavour / taste have changed.
I have been a witness to 2008 melt down and want to share some things on that, while sub-prime had started showing signs of problem in Oct of 2007 in USA, India was in its own bliss and Indian PE, market positions & financial activities were at the top. FII’s dominated the markets and they had a better hang on what was happening in world. Indian Equity Market was small & a big FII short position along with poor liquidity condition due to an ongoing IPO, led to the whole market fall like pack of cards. At that time we were at the peak of growth i.e. 8% plus, interest rates were low & inflation was high.
All these were perfect combination for forecasting a slow to moderate growth in the wake of what was happening in USA. However it started as a financial crisis, followed by Lehman collapse & aggravation to the crisis situation.
Comparing that with current situation is like comparing apples with melons.
Current situation is a pandemic led & can very well result in financial meltdown, but not due to paucity of finance as Monetary Institution world over have loosen their purse, but the world may see demand shock rather than supply, since all are prisioned currently…entire economic activity has come to halt world over . While lower strata of economy that are like daily wagers will be pinched the most & demand from them will be highly vulnerable, monetary & fiscal measures would be taken as required. However pessimism has moved to such an extent that people have started discounting that government cannot do anything and worst situation will prevail or rather it will deteriorate further. If China can contain it in 2 months it means that there is likely hood of its containment in every country sooner or later.
To sum up there are lot of uncertainties for which frankly speaking nobody has any answer including me. What is there in my hand is my financial discipline. To lot of my clients, friends & relatives who are stuck up at higher levels my advice would be wait & don’t panic because now it may not be correct time to liquidate. Those waiting on sidelines & thinking to enter when everything settles down, though it may be good strategy but assess your preparedness and check whether you are also not timing the market? And those who are still systematically doing their financial allocation, kudos to you as it has proven to be correct strategy in long term.
Fortune Favours The Brave’.
- CA JAYESH GANDHI
Disclaimer: This is an informative document and opinions expressed in it are our own and not any advice. We are certified investment advisors yet to be SEBI registered. We are AMFI registered MUTUAL FUNDS DISTRIBUTOR.
