Sensex Crashes as Coronavirus Becomes a Pandemic. Here's What Mutual Fund Investors Should Do Market going into a tailspin has left mutual funds investors feeling jittery about their investments
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Following the news of World Health Organisation (WHO) declaring coronavirus a pandemic, Indian stock market indices witnessed its ugliest one day crash in absolute terms on Thursday. The BSE Sensex benchmark nosedived 2,919 points to close at 32,778, whereas its NSE counterpart Nifty was at 9,590, down 868 points.
Markets have been chaotic this whole week owing to a series of local and global factors—oil price war between Saudi Arabia and Russia, deepening Yes Bank crisis and increasing coronavirus scare.
Today's crash has surpassed the single-day record fall of 6 per cent on 9 March that was mainly driven by fall in crude oil prices. "The epicenter of Monday's crash was a 30 per cent lump in global crude prices following a price war launched by Saudi Arabia," said Tarun Birani, Founder and CEO TBNG Capital Advisors. "The oil price drop triggered a pull-out from risky assets and a flight to safety to bonds and gold. This leads to the drying up of foreign fund flows."
Market going into a tailspin has left mutual funds investors feeling jittery about their investments. Here's what they should know.
What Should Mutual Fund Investors Do
Experts say that fall in market is part of equity investing and does not mean absolute losses. "Equity investors should not panic and stop their SIPs (systematic investment plans)," says Rohit Shah, founder and CEO, Getting You Rich. Raj Khosla, founder and MD, MyMoneyMantra.com concurs and says stopping SIPs in a falling market will in fact be an opportunity loss. "SIPs help in reducing average cost of acquisition and remove the need for timing the market," he says. "Investors buy more units when the market is down. By exiting, they will lose the opportunity to accumulate more."
Wealth and fund managers of leading personal wealth and asset management companies took to twitter to express similar sentiment. Radhika Gupta, CEO, Edelweiss Asset Management said "The worst thing you can do is exit equities now."
There is empirical data to show that disciplined equity investing pays off in the long-term (see table). Entrepreneur India picked one mutual fund each from the categories of large-cap, mid-cap and small-cap to track their performance in the last seven years. Since March 2013, the market has seen several highs and lows, with February 2016, October 2018 being some of the time periods when the markets dipped.
How Much Monthly SIP of INR 5,000 Has Earned Since March 2013
Current Value of Investment (INR)
ICICI Pru Bluechip Fund
Axis Mid-Cap Fund
Nippon India Small Cap Fund
Source: Value Research.
Returns as on 11 March 2020. Total investment amount is INR 4.25 lakh. *trailing returns
In fact, some market watchers are calling the current sharp fall an opportunity for long term investors. Swarup Mohanty, CEO of Mirae Asset Global Investments tweeted on Monday, when the stock market tanked by 6 per cent: "These are opportune times."
Birani suggests increasing SIPs as the current fall has made markets attractive. "I strongly recommend investors in mid-cap funds to top-up their SIPs as this segment has corrected the most."
Having said that, the fundamental of mutual fund investing is goal-based and not timing the market, say experts. "While adding more SIPs is alright, deploying a lump sum just because the market has corrected is akin to getting admitted in a newly opened hospital because it if offering discounts," says Shah. Most importantly, investors should check if their monthly budget allows additional investment, stick to asset allocation and not overdo equity in their portfolio if they don't have the appetite for it.
As for debt fund investors, amidst the sharp fall in oil prices due to price war between Saudi Arabia and Russia, bond prices have risen sharply. "Bond prices are directly proportional to returns on debt funds, so debt investors may have benefitted," says Deepak Jasani, Head - retail research, HDFC securities.
But, investors are advised to not blindly chase returns from bonds and practice caution in such turbulent times.
Pandemic Status of Covid-19 Spells Trouble for the Economy
The pandemic status of COVID-19 has sent shockwaves across global stock markets and the economy at large. WHO has defined pandemic as "the worldwide spread of a new disease", which means that it affects all countries as opposed to an epidemic that affects a particular region in a country.
Countries are stepping up efforts to contain economic as well as financial fallout from the virus as businesses across sectors get hit. "The Federal Reserve lowered its benchmark rate by 50 basis points to the range of 1-1.25 per cent. It was an emergency cut and the last time the bank made an interest rate cut at an emergency meeting was during the global financial crisis of 2008," says Birani. Moreover, due to mounting fears of a global recession, consumers are expected to go easy on consumption in an already sluggish economy.
The Reserve Bank of India is also expected to cut rates. "RBI and the government may take all steps to counter the effect of slowdown due to coronavirus and other reasons and infuse sufficient liquidity in the system by cutting rates. However, beyond a point rate cuts may lose their potency and the government may have to start fiscal spending to stimulate demand," points Jasani.
The rupee depreciated 49 paise on Thursday against US Dollar.
India has imposed strict travel restrictions as a precautionary measure. All existing visas between 13 March and April 15 have been suspended and travellers arriving from seven virus-hit countries—China, Italy, France, Republic of Korea, Spain and Germany—will be quarantined for a minimum 14 days. Only diplomatic official's visas and those for UN/international organizations, employment and projects will be excused. India has registered 73 confirmed cases till the time of filing this story, with no confirmed deaths so far.
The number of confirmed cases in over 100 countries around the world has touched 1,24,000, with over 4,500 deaths. After China, Italy and Iran are among the worst hit countries.