The Opportunity in Crisis


Podcast Transcript:

Clearly, our markets have walked into a crisis we could have avoided. It was in good measure… our own making.

Too much liquidity chasing stocks had made markets way too expensive. But, investors kept pouring money into SIPs. And the markets refused to correct despite FII’s selling through the year. The sharp spike in oil prices and the crisis in the financial sector spooked what seemed like a never-ending party. Within a week, the markets look to have lost all their resilience. From a time when nothing could spook our markets, we have swiftly transitioned to a point where no news is viewed positively by the markets. Sentiment has a way of swinging towards extremes very quickly. The current swing is not unusual. We tend to overdo our greed and fear alike. Now, it is the turn of fear to overplay itself.

Nobody talks of buying equities now when supply of good quality stocks at moderating valuations is rising. When we should be shopping for equities, investors are running scared. The sharp fall in financial stocks has greatly shaken up the index, and investor sentiment has been mauled. Public mood is despondent.

But is the situation so dark as the markets are making it out to be?

Probably not. While oil prices present a real risk to our macros, the situation is unlikely to prolong for too long. Trade deals and oil deals between US-China and US-Iran will probably give India much needed relief on the macro front.

But, it is difficult to predict when this uncertainty will end. So, there is no option but to wait. But waiting to undertake investment actions does not make sense.

A sharp fall in our markets presents a very attractive long-term buying opportunity. This opportunity must be selectively bought into. It is a good time to refocus investment portfolios towards the future. Deep contrarians can bet on the reversal of oil prices. Even risk averse investors can dip into defensive themes, which looks far more attractive now than a few weeks ago.

Mutual fund investors are in a bigger crisis than the equity investor. They had focused heavily on mid and small cap themes in 2017 & 2018. These are showing negative returns. Many investors are also wondering how to deal with their balanced funds which they wrongly bought to replace their fixed deposits.

A proper review of investments and a timely restructuring of portfolios is the need of the hour. Investors must now seek forward-looking advice. And, swift rejig may not work going forward. For instance, the financials theme may see rough days ahead. A new market leadership is in the making. An investor must clearly be forward-looking in his approach and be willing to walk out of mistakes. Given that most investors are fully invested now, fresh monies must be created within their portfolios itself. This can be done only by selling the weaker ideas and betting more on the stronger ones.

Crisis is always clearly an opportunity. Stocks get thrown away in a crisis. This makes it a good time to invest in mutual funds too. When more monies are invested during crisis hour, we give ourselves a better chance to leverage the opportunity. Crisis hour always tends to gradually reach their end. Then the market swiftly put the crisis behind and moves on.

A smart investor must use the crisis hour to buy cheap and then hold onto his investments for long periods of time. Buying into a crisis is the current opportunity. It clearly is too good to pass.


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