Process to Invest in Mutual Funds in COVID-19 Scare
Two latest developments worldwide- the spread of coronavirus and the global crash in oil prices - have affected the market sentiments and contributed to the high fluctuations & fall in equity markets all over the world, including India.
The market is concerned with the spread and the impact of the Covid-19 (Novel Corona Virus). The CBOE Volatility Index (VIX), a measure of volatility in equity markets tracked widely has been at multiple-year highs and has been extremely volatile itself in the last couple of months. The Indian stock markets have been experiencing very high fluctuations in the last few weeks This volatility is reflective of the conditions in global markets.
The full impact of the virus on the population & economies across the world remains largely unknown. Governments across the world in the United States, Europe, and Asia have announced fiscal and policy stimulus in a bid to mitigate the economic impact. The state initiated measures currently have not been able to calm the situation in financial markets.
The fears, in our assessment, will subside once the governments get a better control – on both the spread of the virus as well as progress in finding cure/vaccine.
For India, the real economy has taken a huge hit with the shutting down of manufacturing units, shopping malls, schools,& industries, etc. amid the state-directed lockdown. These steps are essential to retard the progress of the epidemic so that it can be controlled. However, this will hit businesses, esp. small businesses, and those who depend on them. Consumption demand is expected to be impacted for at least a quarter. There is likely to be some need for forbearance on loans as businesses are undergoing stress. The banking system will need to support the markets & industry during these challenging times by adopting several measures.
Oil prices have added to the volatility in global financial markets. The moves by Saudi Arabia-large price discounts to its Asian customers and threats to increase production in a bid to defend its market share, have unnerved the oil markets and oil prices are hovering at 18-year lows.
For India, the huge fall in oil prices, if remains in trend over the next quarters, can provide potentially higher fiscal headroom to the Indian government which could be used for boosting consumption and government expenditure on the economy as well.
It is estimated that a $10 per barrel decline in crude oil prices on an annualized basis reduces CAD by about $15 billion or 50 basis points of GDP. A $10 decline in crude oil prices increases the fiscal headroom by $1.9 billion (approximately Rs 14,000 crore) due to reduction in cooking fuel subsidies. We believe that the markets may continue to experience high volatilities until we have a cure for the disease. Valuations of stocks in Indian markets have become quite attractive or cheap owing to the recent market corrections. The 1 year trailing P/B (Price to Book) & P/E (Price to Equity) ratios are at their multi-year lows.
However, we believe, investors should invest in a calibrated and staggered manner. They can make use of tools for staggered investments like Systematic Investment Plans (SIP) and Systematic Transfer Plans (STPs). Typically, SIPs allow disciplined investing that helps build an investment corpus over a long time period. Systematic Transfer Plan (STP) is also a systematic option which could be used in the current volatile markets. We urge the investors to contact their financial advisors and do a thorough need and goal-based investment planning as there are ample opportunities in current market conditions.