In March when Covid-19 hit the country India, the stock market crashed and erased a lot of gains from long term investor’s portfolio as well as mutual fund portfolios. Stocks reaching 52-week highs fell drastically. The stock market witnessed a big crash down, affecting the earnings of investors. The market fell up to 38% from its January highs.
Even when the covid-19 cases were in a full swing, the market was showing positive reactions, investors were accumulating stocks at a lower price so the price will rise in the future. The market gained about 46% from its March’s lows. Even though it was earlier predicted that the GDP will be cut down by 4-5% in FY20, it is expected that in the early FY21 the GDP will rise at a good pace.
As there is a huge gap between the economy and the markets, it is believed that the economic conditions are not the sole determination cause of the market prices. A sharp recovery is expected in 2021. With the Indian Monetary Fund (IMF) projection, it is assumed that in FY21 the economy will grow at 6%.
A retail investor in the equity markets are aware about the markets being inherently volatile and thus can predict the stock prices in future. If an investor looks at the longer time frame, the volatility tends to decrease. To explore the opportunity of making money in the stock market, an individual shall ignore the short-term market investments and hold equity-backed installments for a longer time.
Markets and economies move in cycles and the momentum over the long term for equities has been on the upside. A good way to make use of the longer time horizon is by investing in Mutual Funds. During the lock-down phase, many investors and financial advisors told their clients to invest a whole lot of money in mutual funds, as once the vaccine is found their mutual fund portfolio will boom.
If an investor already has existing SIP’s in different mutual funds are planning to invest for their first time, anytime is a good time. But if an investor wants to invest and hold shares for a long term, it is necessary for them to time the market and enter accordingly. One shall invest more when the NAVs are low, there is a greater potential to generate a better run over the long term.
As India faced a lock-down for more than 100 days, various businesses halted their work and thus reduced their quarterly returns. Several corporates have announced their earnings recently and they have indicated that the economic growth will be fragmented over the short-to-medium-term. While companies are busy restructuring their operations and product mix to improve cash flows by maintaining or improving margins, and fund managers are keeping their ears to the ground, as an investor the right approach is to stay invested to reap the full potential of equities over the long term.
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