Reasons for the market crash
NIFTY 50 has fallen around 27% YTD. The sell-off has been a part of a fall across global stock markets. Several issues have culminated in a sense of panic:
- COVID-19, global lockdowns, and the associated global sell-off creating liquidity issues
- Crude oil plunge following the OPEC/Russia face-off
- Yes Bank rescue marginally adding to the market woes
Impact of lockdown on markets
The spread of the coronavirus and the subsequent nationwide lockdown has bought businesses, production, consumption and whole economies to a standstill. The pandemic’s duration to peak out and subside will determine market pain and earnings forecasts.
Points of comfort include strict lockdowns, rate cuts, economic stimulus packages, and extending testing kits. Our Government demonstrates a commitment to contain the virus and limit long-term effects on the economy.
How the market has recovered in the past after crisis
Historic market data shows that recovery after a steep fall is usually swift. The years succeeding such falls see significant upsides. Hypothetically speaking, a 40% fall in markets present an upside opportunity of 66%. Such opportunities do not come often. Post-market crashes, large-cap companies recover faster than their mid and small-cap counterparts. Data also show a high VIX number is subsequently followed by equity market spike. For context, the India VIX recently touched an intraday high of 86.6 in March 2020.
Low oil prices, low-interest rates, and corporate tax cuts are some drivers to boost the post-coronavirus Indian economy.
What should Investors do during the market crash?
Overall, equity markets are trading at attractive valuations. Both value traps and pockets of opportunities exist. Entering high-quality stocks is crucial. Risk-reward metrics are in favour of equity investments. Conservative investors who aren’t expert stock selectors can invest in an index or exchange-traded funds. They can expect decent risk-adjusted returns over the long term. Investors seeking alpha can choose direct equity, actively managed mutual funds, or portfolio management services.
We advise investors to stay calm and avoid selling off. Instead, gradual and regular incremental investments make the best use of market volatility. Those who invest now will surely reap higher benefits in the long run.
Our strategy
At Solitaire, we are fully taking advantage of this unique market opportunity. We are building positions in strong businesses in resilient industries with good management and stable prospects. We aim to gradually scale up our high conviction ideas at these attractive valuations. This will build a high–quality portfolio. 2020 and 2021 are the years to build long–term portfolios that reward investors in the future.