Coronavirus Outbreak: Understanding the Impact of Volatility On Investors
The spread of coronavirus across the globe has been the talk of the town, but its repercussions have been felt on economies and largely on investments across the world. Read to understand the impact of market volatility.
The coronavirus pandemic has brought the world at a standstill, and its tremor is felt across the global markets. For the first time in a decade, Indian investors have witnessed the wrath of a full-blown bear market with the deadly COVID-19 outbreak.
It is clearly evident that the outbreak of the pandemic reduced investments and lowered financial transactions, impacting the entire global market. The increasing number of cases on the home ground has triggered panic and as a result, its impact is being felt across the nation.
The Volatility Gamble Of Share Market
The effects of coronavirus shifted the market’s sentiment overnight with ‘optimism’ turning to ‘fear’. This led to an unexpected fall in the market, further sending a chain of shock waves across the economic spectrum. Now, investors are in a fix as volatility seems to be extending longer than expected.
The last 5 years were a rough ride for the nation – starting from the demonetisation in 2016 that slowed down supply chains and businesses, the introduction of a new indirect taxation system, GST in 2017, and massive bad loans like the IL&FS in 2018 ceased the growth of Indian economy.
As a countermeasure, India Inc. aimed the Union Budget 2020 towards attracting investments and devising policies and regulations towards damage control.
The decline in automobile sales in 2019 was the worst since December 2000. Experts estimate that the cascade of events followed by the prevailing situation, coupled with the fall out of the share market has wiped out the investors’ wealth to a tune of ₹14.2 trillion and is headed towards a frail economy.
It must be noted when volatility occurs, it is a litmus test on the investors’ appetite for risk. Although a short-lived phenomenon, volatility, in the long run, has a strong trend of predictability with sizable returns. The market returns with a 5-year incubation period post the volatility indicates a positive result though.
Vulnerability Of Economic Downturn
As India’s tally increases, the nation has entered into complete lockdown, with the market slowly indicating a massive bear phase in the upcoming days. With indices taper off at multi-year lows after falling 35% from their January peaks, the first two phases of the pandemic have already washed off Rs 52 lakh crore worth of equity investor wealth.
It is during such times, a planned contingency fund comes as a resort. At present, the Contingency Fund of India is accounted to be 8000 Cr. Additionally, a go-to fund to tackle the coronavirus outbreak has been set up by the government.
Amidst such a situation, investors must understand that bear markets can prolong the wait for returns and it becomes prudent to have sufficient buffers in their portfolio. As a defence measure, investors can diversify their portfolio through alternative asset classes, thereby reducing market risk.
Examining The Effects Of The Outbreak
Industry experts predict that the impact of coronavirus on economic growth would persist at least until the first half of 2020.
As mentioned earlier, one of the adverse impacts would be the limited mobility of people. While the effect will be felt across the various sectors, with manufacturing being the most significant one.
A Glimmer Of Hope
With the frequency of new roadblocks affecting the markets consistently, it is advisable to look for other opportunities and secure your investment portfolio.
As the intensity of the outbreak subsides, the businesses will gradually improve. Stocks will again thrive as the market picks-up momentum. In the world of investments, the show must go on in the form of alternative investments that are designed to overcome the lull.
Most investors are accustomed to stocks as their primary investments, a spot of bother is when Sensex dips. It is necessary to bring in the discipline about personal investments.
For instance, an investor who manoeuvres his investments through stocks will have to be in hibernation until the market recovers. A series of economic downturns will question the credibility of his investments and that’s when diversifying the investment portfolio gains momentum offering the much-needed reaction time.
Dedicating time in research and scouting for options like a high return debt product devoid of market interference assures better control over funds.
Bottomline
The key for your investment portfolio is diversification as it absorbs the mounting pressure on the performance of a particular investment. In recent years, an economic slowdown is no more the sole reason for non-performing investments as several factors are gaining control over the markets. The unpredictability of these phenomena should not be a hindrance for investments as exploring other investment options can pave the way for a profitable and worthy future. Nevertheless, the present situation is an eye-opener for investors to be well-prepared and watchful when something like this hits the market.
