What is a sound investment during the Coronavirus period and how should investors go about it?

It was in 2019 that the world economy began to face a complete synchronised slowdown (since the Great Recession). This was because global markets began to suffer a sharp deterioration of manufacturing activity. Although the IMF (International Monetary Fund) has blamed heightened trade and geopolitical tensions citing Brexit and the China-United States trade war as reasons for the slowdown in 2019, many economists blame liquidity issues. 

 

This recession, which began in most countries in February 2020, is also known as the shortest global recession on record. Major indices dropped 20 to 30% in late February and March, while recovery began in April 2020. There were unusually high and rapid increases in unemployment in many countries. Moreover, global events such as the 2020 Russia-Saudi Arabia oil price war impacted the global stock-market crash.   

 

With the 2020 stock market crash the world began to grapple with rapid and unanticipated sharp drops in stock prices because of the COVID-19 recession. Right from the day that the World Health Organisation (WHO) had declared the virus as a pandemic, the Sensex began to plunge, coinciding with the YES Bank Crisis leading to the BFSI sector losing crucial points.  The pandemic set off innumerable lockdowns in countries around the world, leading to a huge market crash in global and Indian markets. There was immense panic selling and insolvency, leading to a bear market.  

 

Every country that has been reliant on travel, tourism, entertainment, and hospitality for their growth are on an ongoing basis experiencing large disruptions. There are unprecedented reversals in capital flows as currency pressures and global risk appetite wanes try to cope with weak health systems and limited fiscal space. 

 

This recession (which began as a massive supply-side shock) has quickly morphed into a demand shortfall which has led to a sharp increase in unemployment, online-only shopping, high levels of uncertainty about recovery prospects and increases in personal savings. This has led many investors in a very uneasy and doubtful place, wondering whether they should continue to hold onto their money, invest in the stock market or invest into Crypto currency.    

 

Most companies stopped generating revenues, which led to employee layoffs. This is what has led to the rise of entrepreneurial journeys and startups across the country. As uncertainty continues to wrap itself around the corporate sector, Covid has permitted people across the world to throw caution to the wind and take risks with their jobs. Many investors are also dipping their toes in the startup industry to gain profits as well.   

 

However, despite the large upheavals in the global economy all has not been lost for investors. They need not lose heart as stock markets continue to perform well as many stocks have even touched record highs despite this ambiguous disruption in the economy.

 

While there was an initial phase of uncertainty the market has also shown spectacular recovery. This market rebound has been even more surprising than its fall. 

 

Investors need to prudently review their investment portfolio and financial goals. Accordingly they can adjust their contribution amounts in different asset classes so as to be able to take advantage of the market volatility.  An investor’s portfolio should have a good amount of diversification.

 

Moreover the recovery is also powered by supportive government policies, blasts of fiscal spending and easy monetary policy at a global level.  

 

Sectors to Back During Current Scenario

 

Healthcare/Pharma and IT are some of the sectors, which have outperformed other sectors even in 2020 in the wake of the pandemic.  They continue to do well even in 2021. Investors need to continue to invest in top performing sectors and explore safe investment options such as Healthcare, IT, FMCG and Telecom. Some of the sectors, which have not shown promising growth, include Aviation, Hospitality, Automobile and Banking.         

 

Investors who have long-term financial goals and owl a well-diversified portfolio will be better positioned for gaining profits. Even those investors who have lost income but yet have a financial roadmap will find it easier to bounce back.

 

It is important to keep a firm determination and stay steady on financial goals to gain profits.   

 

Fast-forward to the end of 2021, most people expect markets to keep rallying as the global economy reopens. Most people are saving less, investing less in markets and shopping more towards a time that is believed to be the end of the pandemic. This raises the prospect of higher consumer price inflation, which leads to higher long-term interest rates and an overheated economy, which can suck money out of the stock market.   

 

With the stock market going flat, this year is predicted to be a mirror image of last (immediately after booming) during a global recession. 

 

Tata Power, MindTree, Zomato, RIL, SRF, Godrej Properties, Ipca Labs and Infosys have been the most active stocks on Dalal Street in value terms.  Vodafone Idea, Tata Power, Zomato, YES Bank, PNB, Suzlon Energy, SAIL, REC and Coal India have been the most traded stocks this season.  Timken India, KPIT Tech, Rajesh Exports, Orient Electric, Tata Tele and Ratnamani Metal are some of the stocks that are witnessing strong buying interest from market participants.