Greed and fear are two primal emotions that have defined human civilizations. These two are renowned for often getting the better of seasoned investors as well. When the situation demands it, investors freeze in their tracks. It is difficult to be greedy when markets are falling like ninepins and fear is abound. But that is the challenge investors must overcome today. After a swift correction, the Indian stock market is interestingly placed. If people have money to invest, then this a good time to start allocating more money to equities. No one can time the bottom or top of the market. But one can invest in a staggered manner when markets are falling and valuations start looking attractive, says Neil Parikh, CEO, PPFAS Mutual Fund. In this week's Finapolis Conversation, Parikh talks to Kumar Shankar Roy about why markets correcting is actually good, what should SIP investors do, and how tough times never last, tough people do. Read on to know more.
Markets have just fallen vertically in a very short duration of time. Why are the stock markets so alarmed?
To be fair, the markets have had a good run for the last 12 years. Overall, the markets were on the expensive side. So, we were due for some correction. The current sell-off is off-course quite steep and severe due to the uncertainty of coronavirus. Markets do not like uncertainty and today the entire world has panicked. There is also a clear slow down that will persist for the next few months-airlines, travel, hospitality, autos, cinemas, items of discretionary spending, etc., will all get affected. The uncertainty and impending slowdown have spooked the markets.
Many investors say that SIP mode of investment is not paying off. They want to try lumpsum investing. Is this the right approach?
One should stick to their asset allocation and investing in a staggered manner is always a good idea. Let us remember equity investing is for the long term (minimum 5 years) and volatility is a part and parcel of equity investing. Investors will need to ride the wave and stay put to enjoy the fruits of their investments in due time. I understand that 2-3 year SIP returns have not been very good, but investors need to have the patience to ride this volatile phase. They will be well rewarded for their perseverance.
I think when markets are falling, it is not a bad idea to tactically allocate lumpsum investments to equities. This will also help rebalance the portfolio as the equity portion would have come down.
When stock markets fall quickly and sharply, what should a fund investor? How do they keep their cool when they see their fund portfolios in red?
The most important thing to do is not panic and make rash decisions. One must stick to their asset allocation and tactically rebalance (if they can) when prices have fallen and certain asset class start looking attractive. Also, expectations need to be tempered. One must not invest with the hope that markets will reclaim new heights in the near future.
One must have some emergency funds parked in safe options like liquid funds, in case there is some unseen event or expenses that need to be met.
The behaviour of the individual will be the most important at this time. At times, not doing anything is a very good strategy. Inaction is sometimes the best action. This is not the time to make impulsive and hasty decisions. History has taught us that tough times never last, tough people do!
The RBI Governor convened a press conference in a bid to assuage frayed nerves in the market. But, some see alarm in the central bank governor coming in to reassure financial markets. How do you see this?
At times like this when the global economy is disrupted, Central Banks all over the world have come to the aid by injecting much-needed liquidity in the markets. If these steps are not taken, they can threaten the solvency of businesses affected by the ongoing crisis. This stimulus will also limit disruptions to financial markets and help banks keep credit flowing. So, I would rather trust our central bank and those around the world to take measures they feel appropriate to help in the current scenario.
Coronavirus is the talk of the town today. But people are not looking at the sharp drop in crude oil prices. Why is the fear of the virus so overpowering?
The overall fear and uncertainty, along with the impending slowdown is currently the most pressing topic. Drop in oil prices is definitely beneficial for India, but everyone's attention is focussed on coronavirus. There is widespread panic all over the world due to the virus and the uncertainty about the exact impact of the virus. Also, today we are exposed to so much news, social media, WhatsApp messages, that the fear and panic gets magnified.
Some investors are attempting to buy on the dips. Isn't this akin to trying to time the market? What will you tell investors in these troubled times to avoid market timing attempts?
I am absolutely fine if people want to take advantage of the market volatility. If people have money to invest, then this a good time to start allocating more money to equities. No one can time the bottom or top of the market. But one can invest in a staggered manner when markets are falling and valuations start looking attractive.
From PPFAS MF perspective, has the sharp drop in markets created buying opportunities for you? How much cash have you deployed?
Yes, we were sitting on some cash so this sharp drop has provided us with an opportunity to deploy our funds. We are deploying wherever we see the valuations have become reasonable. Overall valuations today are definitely looking more attractive than a month or so back.
Will the current crisis be reversed soon as is being speculated in some quarters? Or, is this going to structurally affect things? Please share your views.
It is futile to predict the future. I have no idea how long this uncertainty will last. As long as there is uncertainty, the markets will be volatile.
I am, however, optimistic that historically the impact of such diseases has been temporary like the earlier cases of SARS, Bird flu, swine flu, etc. So, I hope this also doesn't last too long, and we can get back to normal life as soon as possible.