Investing in stock market post Covid-19 era!

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Investing in stock market post Covid-19 era!



During the 3rd week of March 20 when corona was declared a pandemic, stock market across the world including Indian market witnessed one of the severest crashes. The investor’s confidence level was at such a low level that nobody in the market was interested to put even a single penny amid the fearful and uncertain conditions prevailing owing to rapid spread of corona virus globally. After a series of lower seller circuits, the markets at last stopped falling and settled at some levels. The US and other western countries reacted promptly to pump in liquidity in trillions of dollars in order to arrest the free fall prevailing in the market. In the month of April market again started rising with the support of aggressive liquidity infusion and stimulus packages by the world’s major economies.  As a result, we witnessed one of the fastest ever recovery in all the markets despite the fact of ever increasing numbers of Covid-19 cases all over the world including India.

In the past four months, Indian indices have also increased more than 50-60 % simultaneously with the other global markets.  A real surprise for every one as nobody ever thought that with massive shrinkage in the economy owing to pandemic effects, market would react like this. This is a real beauty of the stock market that it reacts against the wind and this time many of the key players missed the opportunity to ride the wave of this Corona virus rally.

 Under such an unusual reaction of the market, it is obvious that most of the investors are hesitating and confused to enter in the market at such a high level. Stock selection is not an easy task under these type of conditions. We can understand that economy will still take long time to come on a growth track and before investing one must keep in mind this fact.  A wise investor will always prefer to protect its capital first before making any investment decision.

Under such uncertain conditions and unpredictable behavior of economy, we will be witnessing a lot of volatility in the market. It will be quite possible that we might see multiple corrections and pull backs and consolidation in the market in medium term until a clear road map is seen visible regarding the eradication of Corona virus. Under the circumstances, investment in staggered manner is advised. At every correction, some part of your investible fund should be invested so that we could take advantage of volatility in the market. India's long term story is still intact although the growth is now delayed for a few quarters due to effects of Covid-19 virus. Therefore, it is the right time to invest now but we should not put our entire fund in one shot. Rather we must invest gradually over a period of time. We assume that all black clouds of corona virus would go away some time in 2021 and we might get a proper vaccine by that time.

If we look closely at the behavior of stocks, we observed that in this Corona virus rally there are many scrips enjoying expansion in their PE multiples against their historic PE. The investors are showing more confidence in those scrips which have a potential of   growth in changing environments. Consistency, adaptability, corporate governance and not highly leveraged factors are playing important role for valuations.  Many of the large caps are enjoying premium to their historical PE multiples. The major gainers are seen in Technology, Pharma, Healthcare and Chemical sectors. This trend is likely to continue and these sectors will command premium over the other counters. However, beaten down sectors like auto and metals have also been showing good trend as we have been opening up now fully in tandem with the global trend. Too much liquidity is in the system chasing a number of stocks which have investors faith and are showing leadership qualities in their respective fields. There is a good demand of quality stock as more liquidity is being prevailed in the market. A sector wise suggestive chart is given below for allocation from long term investment point of view to invest gradually for creating a good wealth in the next bill run. 

We have been undergoing through a very low level of interest rates regime and if we put major savings in liquid funds, we will not be able to have a reasonable ROI which might not cover our future financial needs. In real estate, large funds are required to be put in. Moreover, the real estate future is still not looking promising for next few years from ROI point of view. Gold and silver rates have increased to unrealistic levels and at this level it is not advisable to enter from investment point of view. So equities remain the only choice through which one can generate wealth provided that investment is made in judicious manner.

          
Suggestive Chart by Sector Wise Allocation


- Rajendra Jhanwar

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